L16 - Total Life Cycle Cost

Question 1

What is the profit of a space project for a firm?

Answer 1

π=πe+s(Ce-Co) Π = realized profitability by contractor Πe = estimated profitability of contractor Ce = estimated costs of contracted space project Co = actual costs of space project s = sharing coefficient. It reflects the rate at which the difference between estimated costs and realized costs is spread between the agency and the contractor. The value of s is between zero and one (0 < s < 1).

Question 2

Draw the relationship between Project Price over Cost.

Answer 2

Question 3

How do you calculate Earned Value Payments?

Answer 3

EVP = (P–SumM)*(CumEV/BaC) - SumPEVP
EVP = (P–SumM)*(CumEV/CBB) - SumPEVP where

P is the project price
SumM is the sum of all milestone payments.
CumEV is the cumulative of all Earned Value.
CBB is the Contract Budget Base.
SumPEVP is the sum of all previous Earned Value Payments
BaC is budget at completion
CBB is contract budget base (=BAC+Management
Reserves)

Question 4

Draw the graph of EVMS with Pricing.

Answer 4

Earned Value (EV) = budgeted cost for work performed = green
 Planned Value (PV) = budgeted cost for work scheduled = blue
 Actual Cost (AC) = actual cost of work performed = red
 Budget at Completion (BaC) = A = expected completion budget at time To Estimated Completion Budget (ECB) = C = estimated budget at time T1 Schedule Variance (SV) = EV – PV

Cost Variance (CV) = EV – AC
 To = starting time of project
 T1 = current time
 Td = expected completion time at T1

Tp = expected completion time at To

Pp = project price planned at time To

Pd = project price estimated at time T1

Cost‐plus contract = purple

In effect, EVMS-P combines EVMS analysis with the pricing analysis seen earlier. The EVMS schedule is illustrated in the right quadrant, while the left quadrant is identical to the illustration of type of contracts. A ‘Planning Box’ (PB= TpABPp) connect the points where planned time of completion (Tp) meets the planned value of the program (A: budgeted cost) and meets the planned price to the left of the 45o line (B), thus resulting in planned profit. At time T1 (current time) the project is reassessed by the earned value method to be heading for delays and over-budget at completion. The new ‘Planning Box’ that takes account of the delays (PBd) is defined by TdCDPp, or TdCEPd depending on whether the contractor makes profit on the part of the program that is delayed and over-budget.

Assuming acceptance with no additional penalty of the project at a later than planned time, a firm fixed price contract at current time is expected to result in zero profits for the final deliverable, while for a ‘pure’ cost-plus contract (such as profit being a percentage of cost), a proportional profit to the cost is achieved. Assuming re-negotiation at current time, the renegotiation line is defined as ED, where the agency aims for point D, while the contractor for point E. In cost-plus with a ceiling, the contractor receives no profit after a certain point defined by budget overrun and/or time. Asymmetry of information is likely to exist in the case where the agency has information at current time of only the left hand side diagram, while the contractor enjoys the full picture. In this case, the contractor can decide whether to share this information with the agency depending on the type of contract and expectations.