ANEP-41 Edition 3 DRAFT

1
NATO Specialist Team on Ship Costing
Irv Chewning Chairman, STSC
SCEA Conference Los Angeles, CA 17 June 2004
USS Port Royal
ITS Maestrale
USS John C. Stennis
HMS Ocean
HMNLS van Amstel
FS de Grasse
FS Charles de Gaulle
USS John F. Kennedy
Multi-National Deployment Operation Enduring
Freedom (April 2002)
FS Sercouf
ITS Durand de la Penne
2
Outline

• NATO Organization
• Allied Naval Engineering Publication Development
  re Specialist Team on Ship Costing
• STSC Participants, History and Products
• ANEP-41 - Ship Costing
• ANEP-49 - Ways to Reduce Costs of Ships

3
NATO Organization
North Atlantic Treaty Organization (NATO)
Organizations Agencies
Civilian Structure
Military Structure
Logistics
Public Policy Division
Military Committee
Standardization
Office of Security
Allied Command Operations
Civil Emergency Planning
Division of Defense Policy and Planning
Allied Command Transformation
Communication and Information Sys.
Division of Defense Investment
Etc...
Division of Operations
4
Location of STSC within NATO Organization
Division of Defense Investment
NATO Naval Armaments Group (NNAG) Current
Chairman ITN RADM Dino Nascetti US Rep.
OPNAV (N096)
Naval Group 6 on Ship Design (NG/6) Current
ChairmanHoward Fireman NAVSEA 05D Current US
Rep Jeff Hough NAVSEA 05D
Specialist Team on Ship Costing (STSC) Current
Chairman Irv Chewning NAVSEA 0175 Current US
Rep Bob Ogrodnik NAVSEA 0175
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BackgroundPurpose of the STSC

• Establish a common framework, definitions and
  work breakdown structure from which the
  participating nations can discuss costs in a
  transparent manner.
• Common understanding of approaches to cost
  analysis in support of national decision-making
  processes regarding the affordability of warships
  in an environment of budgetary constraints.
• Need for cost reduction in all areas of ship life
  cycle costs Design, Acquisition, Operations
  Support, and Disposal.

6
Participants in ANEP-41 ANEP-49 Development

• Australia
• Belgium
• Canada
• France
• Germany
• Italy

Netherlands Norway Portugal Spain
United Kingdom United States US Coast Guard
7
Work of STSC is typically Institutionalized via
Creation or Updating of an Allied Naval
Engineering Publication (ANEP)

• An ANEP is a guidance document for use by NATO
  Allies in a collaborative program or project
• An ANEP does not bind any nation to its use
• Two ANEPs have been created by the STSC
• ANEP-41 on Ship Costing
• ANEP-49 on Ways to Reduce Costs of Ships
• Process of Creation or Update of an ANEP
• Working Group or Specialist Team chartered by
  NG/6
• Nations intending to participate are identified
  and a Chairman selected
• Terms of Reference and Program of Work drafted
  by the Team and approved by NG/6
• Working Paper drafted by the Team and presented
  to NG/6 with recommendations
• ANEP drafted and presented to NG/6 for approval
  and subsequently presented to NNAG for final
  release approval

8
History - Ship Costing ANEP Development
NG/6 (formerly IEG/6) ON SHIP DESIGN
Ad Hoc Working Group (AHWG) ON SHIP
COSTING (Working Paper - 1990)
Specialist Team on Ship Costing
(Working Paper - 1995)
ANEP-41 July 1992
ANEP-49 January 1996
OBJECTIVE Coherent Approach and Guidance for
Ship Designers, Cost Estimators, Decision
Authorities, and Others involved in ship
acquisition
AIM Affordable Fleet!
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9
History - Ship CostingANEP Updates
November 1997 Task as Directed by NG/6
Prepare Working Paper regarding Ship



Cost Reduction Trends and Practices
National
Literature
Expertise
Survey
Contributions of
gt70 Articles
12 Nations
Presentations
3 Focus Areas
Commercial
Total
Manpower
Standards
Ownership
Reduction

Cost
Practices
Trends in Manpower Reduction and the Use of
Commercial Standards, Practices and Contracting
Strategies to Reduce Costs of Naval Ships, June
1999
Total Ownership Cost Concept, December 2002
Two Working Papers
ANEP-49 Edition 2 November 2000
ANEP 41 Edition 3 December 2003
9
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ANEP-41 on Ship Costing

• Provides a framework and overall process for
  discussing, comparing or developing ship cost
  estimates consisting of
• A comprehensive list of known ship cost elements
  in terms of a NATO Ship Cost/Work Breakdown
  Structure
• A Hierarchy of Ship Cost Terms extending from the
  NATO Ship Cost/Work Breakdown Structure up to the
  total program cost and
• Broad guidance on the use of Ship Cost Models
• Edition 1 March 1991 Contains CWBS, Terms and
  Definitions and NATO Ship Cost Hierarchy
• Edition 2 July 1992 Validates process outlined
  in Edition 1 by costing a common ship design
• Edition 3 December 2003 Incorporates TOC
  Concept together with framework and definitions
  of elements that make up Life Cycle Cost, Total
  Ownership Cost, and Whole Life Cost.

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ContentsANEP-41 Edition 3

• Foreword
• Chapter 1 Introduction
• Chapter 2 Ship Cost Terms and Definitions
• Chapter 3 NATO Ship Cost/Work Breakdown Structure
• Chapter 4 Total Ownership Cost
• Chapter 5 Costing Methodology
• Chapter 6 Multinational Considerations
• Chapter 7 Implementation Guidelines
• List of References, List of Acronyms
• Annex A NATO Ship Cost-Related Terms and
  Definitions
• Annex B Expanded Ship Work Breakdown Structure
  Title Index
• Annex C NATO Ship Programmatic Cost Element Index
• Annex D Allocation of NATO Ship CWBS to LCC
  Composition
• Annex E NATO Alternate OS Cost Categories for
  Ships
• Annex F NATO Elements of Manpower Cost for Ships
• Annex G Cost Models

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NATO Ship Costing Components
13
NATO Ship CWBS Multidimensional Aspect (Top
Level)

• Costs separated by
• Common among nations
• Unique to a nation

14
NATO Ship CWBS Multidimensional Aspect (Detailed)

• WBS similar to US Expanded Ship Work Breakdown
  Structure
• Program Phases per NATO Phased Armaments
  Programming System (PAPS)

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NATO Ship Cost/Work Breakdown Structure (Level 3
Elements)
LEVEL 1
TOTAL PROGRAM
LEVEL 2
COMMON ELEMENTS
UNIQUE ELEMENTS
HARDWARE
HARDWARE
LEVEL 3
SOFTWARE
SOFTWARE
DESIGN SUPPORT
DESIGN SUPPORT
SERVICES
SERVICES
PROGRAMMATIC
PROGRAMMATIC
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NATO Ship Cost/Work Breakdown Structure (Level 4
Elements)
UNIQUE ELEMENTS
COMMON / UNIQUE
LEVEL 2
LEVEL 3
PROGRAMMATIC
SOFTWARE
HARDWARE
DESIGN SUPPORT
PROGRAMMATIC
SOFTWARE
HARDWARE
DESIGN SUPPORT
GROUP 100
GROUP 100
GROUP 000
BUDGETING
GROUP 100
GROUP 100
GROUP 000
BUDGETING
HULL
HULL
GUIDANCE
PRACTICES
HULL
HULL
GUIDANCE
PRACTICES
LEVEL 4
STRUCTURE
STRUCTURE
STRUCTURE
STRUCTURE
ADMINISTRATION
GROUP 200
GROUP 200
GROUP 800
ESCALATION
GROUP 200
GROUP 200
GROUP 800
ESCALATION
PROPULSION
PROPULSION
INTEGRATION
PROPULSION
PROPULSION
INTEGRATION
PLANT
PLANT
ENGINEERING
PLANT
PLANT
ENGINEERING
GROUP 300
GROUP 300
GROUP 900
LAW
GROUP 300
GROUP 300
GROUP 900
LAW
ASSEMBLY
ASSEMBLY
ELECTRIC PLANT
ELECTRIC PLANT
GOVERNMENT
ELECTRIC PLANT
ELECTRIC PLANT
GOVERNMENT
SUPPORT
SUPPORT
REGULATIONS
REGULATIONS
SERVICES
SERVICES
GROUP 400
GROUP 400
CONTINGENCIES
GROUP 400
GROUP 400
CONTINGENCIES RESERVES
COMMAND
COMMAND
COMMAND
COMMAND
SURVEILLANCE
SURVEILLANCE
SURVEILLANCE
SURVEILLANCE
GROUP 500
GROUP 500
GOVERNMENT
GROUP 500
GROUP 500
GOVERNMENT
AUXILIARY
AUXILIARY
SUPPORT
AUXILIARY
AUXILIARY
SUPPORT
SYSTEMS
SYSTEMS
ACTIVITIES
SYSTEMS
SYSTEMS
ACTIVITIES
GROUP 600
GROUP 600
NATO PROGRAM
GROUP 600
GROUP 600
NATO PROGRAM
OUTFITTING
OUTFITTING
OFFICE
OUTFITTING
OUTFITTING
OFFICE
FURNISHINGS
FURNISHINGS
ACTIVITIES
FURNISHINGS
FURNISHINGS
ACTIVITIES
GROUP 700
GROUP 700
SHIPBOARD
GROUP 700
GROUP 700
SHIPBOARD
ARMAMENT
ARMAMENT
LOAD
-
OUT
ARMAMENT
ARMAMENT
LOAD
-
OUT
ITEMS
ITEMS
DISPOSAL
DISPOSAL
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NATO Ship Program Phase CWBS Correlation
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NATO Ship Life Cycle Cost Hierarchy

• OPERATIONS

INITIAL CONSTRUCTION COST
PLUS
PLUS
PLUS
PLUS
PLUS

COMMON

DESIGN

OPERATIONS

ITEMS NOT AFFECTED BY THE EXISTENCE OF THE
SHIP/WEAPON SYSTEM
PROJECT MANAGEMENT
SUPPORT

DEVELOPMENT
SUPPORT
MANPOWER

HARDWARE (e.g. Structure, Propulsion, and
Electric Plant)
ITEMS SYSTEMS

SOFTWARE (e.g

RECRUITING

• LOAD- OUT
• ITEMS

Computer programs,

ACQUISITION

START-UP (e.g. Tooling, Jigs, and Fixtures)
Coding)

TRAINING
- MILITARY ACADEMIES

INFRASTURE

• DISPOSAL

MEDICAL


TECHNICAL DATA

COST FOR
ALLOWANCE FOR CHANGES e.g. Design, Schedule)


PUBLICATIONS
SUPPORT
- CEREMONIAL UNITS - SHORE-BASED TRAINING -
HOSPITALS - NAVY STAFF
PLANNING,

SUPPORT EQUIPMENT

MANAGING,

TRAINING EQUIPMENT

TEST AND TRIALS
OPERATING,

INITIAL SPARES (Shore Based)
INITIAL OUTFIT (onboard Spares, Repair Parts,
Tools, and Fuel)
AND
EXECUTING

FACILITY CONSTRUCTION
SAIL-AWAY COST

PROJECT LEAD-SHIP OVERCOST
NATO PROJECT MANAGEMENT OFFICES

PROGRAM ACQUISITION COST
PROGRAM LIFE CYCLE COST (LINKED DIRECT)
TOTAL LIFE CYCLE COST ( PLCCLINKED VARIABLE
INDIRECT)
TOTAL OWNERSHIP COST ( TLCC LINKED FIXED
INDIRECT)
WHOLE LIFE COST (TOC NON-LINKED)
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Total Ownership Cost Concept

• Total Ownership Cost includes all linked-direct
  costs associated with the research, development,
  procurement, operation, logistical support and
  disposal of an individual weapon system (e.g.,
  ship) plus the linked-indirect costs of
• the total supporting infrastructure that plans,
  manages and executes that weapon system program
  over its full life and
• the cost of requirements for common support items
  and systems that are incurred because of
  introduction of the weapon system
• but, excluding the non-linked Navy
  infrastructure costs that are not affected by
  individual weapon systems development,
  introduction, deployment or operations

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Ship TOC Cost Domain

• Maps Cost Types to NATO Ship LCC Hierarchy
• Linked Direct Costs specifically associated to
  the development, procurement, operation and
  support of the individual ship or ships systems
• Linked Indirect Costs related to other
  programs, ships or weapon systems, in addition to
  the given ship or ships systems
• Non-Linked Costs of Navy operations not
  associated to individual ship or ships systems
• Permits flexible approach to selecting desired
  level of LCC in a given collaborative program

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ANEP-41 Implementation Guidelines

• 1. The baseline ship design and technical
  requirements and configuration must be
  established.
•  2. The acquisition strategy must be defined for
  all phases of the program.
•  3. Agree to a CWBS and cost element definitions
  for use as the common basis for costing the
  proposed ship for comparison to the agreed cost
  target.
•  4. All cost elements must be identified at the
  agreed level of the NATO Ship LCC Hierarchy.
•  5. Each cost element identified must be assigned
  to the applicable life-cycle phase(s) of the NATO
  program.

• 6. The cost elements identified must be placed
  within the structure of the CWBS.
• 7. Each identified element must be designated as
  either common or unique.
• 8. Cost models and databases for use in the
  development of Cost Estimating Relationships must
  be established and agreed upon.
• 9. Cost estimates must be developed for each
  phase of the NATO ship program using the CWBS
  format and agreed cost model(s).
• 10. The above process should occur at the
  beginning of all NATO ship programs in order to
  provide a frame of reference for all ship design
  and cost decisions.

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History ANEP 49 Development
Literature Survey
Topics
National
Expertise of Participating Nations
Compilation of 45 Papers or Presentations
Topics
Identification of 28 Topics 28 Point Papers 3
Major Working Papers
Literature Synthesis
Salient Point Summaries Document Analysis by PAPS
Phases
ANEP 49 on Ways to Reduce Cost of Ships
Executive Summary Introduction 7
Chapters Conclusions Recommendations 4
Appendixes
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ANEP-49 on Ways to Reduce Costs of Ships

• Provides emphasis and guidance to ship designers,
  naval staff planners, project managers, decision
  authorities and others on potential areas for
  cost reduction in naval ship acquisition,
  ownership and operation, that they may influence.
• The document is a guide only and thus should not
  be interpreted in an absolute fashion. It
  emphasizes that national cost specialists or
  experts should be utilized as an inherent part of
  the decision process.
• Edition 1 January 1996 Outlines considerations
  and opportunities for cost reduction by program
  phase
• Edition 2 November 2000 Incorporates TOC
  Concept together with expanded discussion of
  commercial standards, practices and contracting
  strategies

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ContentsANEP-49 Edition 2

• Executive Summary
• Introduction
• Chapter A Mission Needs and Requirements
• Chapter B Technologies
• Chapter C Design
• Chapter D Acquisition Process
• Chapter E Production
• Chapter F Operations and Support
• Chapter G Cost Management
• Conclusions and Recommendations
• Appendix I Chronology of Development
• Appendix II Glossary of Terms and Definitions
• Appendix III Selected Information on National
  Experiences Relevant to Ship Cost Reduction
• Appendix IV Value Engineering Process Steps

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ANEP 49 Topic Areas
28 Topics and Three Working Papers

• Requirements (Mission)
• Procedures/Process to Establish Requirements
• Commercial Vs. Military Standards
• Design-to-Cost
• Common Procurement/Purchases
• Technology Innovations
• Time and Decisions
• Contracting Practices
• Commonality
• Specifications/Project Definition
• Operations and Support Considerations
• Cost Management
• Value Engineering
• Eliminate/Reduce Change
• Total Ownership Cost

• Crew Reduction Vs. Automation
• Contractor Data Requirements
• Design and Production Processes
• Reliability Analysis
• Risk Acceptance Level
• Margin Policy
• International Cooperation
• Standardization of Cost Effective Solutions
• Learning Curve Maximization
• Industrial Base Productivity, Competitiveness and
  Reliability
• Design/Cost Tradeoffs (Affordability Analysis)
• Use of Competition vice National Concerns
• Environmental Impacts

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ANEP-49 Ways to Reduce Costs of Ships Design
Phase
Design Tradeoffs Commercial versus Military
Standards/Practices Margin Policy
Technologies
Integrated Design Design-for-Production
Investment for Life Cycle In-Service
Flexibility Process Simplification
Product-Orientation Modularization
Standardization Group Technology Commonality

Joint-ness Interoperability International
Cooperation
Cost-Oriented Design
27
ANEP-49 Ways to Reduce Costs of Ships
Acquisition Phase

• Lead Ship Acquisition Activity Could Involve 10
  Years or More
• Requirements changes
• Technological changes
• Acquisition Strategy a Significant Factor
• Contracting practices
• Type of contract
• Contractor incentives
• International cooperation
• Political socioeconomic aspects
• Risk mitigation

28
ANEP-49 Ways to Reduce Costs of Ships Production
Phase

• Production Costs Affected By
• Acquisition strategy
• Industrial policy/technology
• Scheduling
• Design changes
• Quantity ordering and learning curve
• Technological innovation/requirements
• Material changes
• Environmental hazards and compliance
• Design for Production Critical
• Cost savings from 10 to 15 can be realized from
  product-oriented or integrated design and
  construction methods.

29
ANEP-49 Ways to Reduce Costs of Ships In-Service
Phase

• In-Service Phase Costs May Constitute 60 - 80 of
  LCC
• Costs Heavily Dependent On
• Peacetime and Wartime operational scenario and
  tempo
• Mission and Policy requirements
• Cost Drivers Connected To
• Personnel Cost (Manning) and Training
• Early design stage planning
• Up-front investment
• Level of automation
• Equipment standardization/ Configuration control
• Continuous acquisition and life-cycle support
• Integrated logistics support
• Design flexibility provisions
• Ease of maintenance and upgrade
• Environmental compliance

30
ANEP-49 Ways to Reduce Costs of ShipsSummary

• Thorough up-front engineering and design work is
  essential to maximizing cost reductions
• Careful consideration and scrutiny should be
  given the following major areas
• Mission needs and capability requirements
• Cost-conscious decision-making process
• Technology advances
• Commercial standards and practices
• Manpower reduction
• Design specifications, acquisition practices and
  construction methods
• Cost management techniques
• Cooperation and teamwork between government and
  industry and between governments
• Forward-looking program planning and management
• An ingrained process that provides transparency
  of costs and cost driver understanding is
  essential

31
Shared View of NATO Allies

• Identify Cost Drivers versus mission needs
• Aim to make all affected costs transparent for
  decision-making