Reduction of Total Ownership Cost

This is a NAVAL POSTGRADUATE SCHOOL MONTEREY CA GRADUATE SCHOOL OF BUSINESS AND PUBLICPOLICY report procured by the Pentagon and made available for public release. It has been reproduced in the best form available to the Pentagon. It is not spiral-bound, but rather assembled with Velobinding in a soft, white linen cover. The Storming Media report number is A628914. The abstract provided by the Pentagon follows: Total Ownership Cost (TOC) is the current initiative to manage costs over the entire life cycle of a weapon system. There are several major categories of costs that contribute to Total Ownership Cost but the principal categories are (1) R&D, (2) Production, (3) Operating and Support, and (4) Disposal System TOC is the same as Life Cycle Cost (LCC) and has implications for Cost As an Independent Variable (CAIV), cost-performance tradeoffs, affordability, and cost to achieve required operational availability. The Program Manager (PM) is responsible for developing and managing system TOC, with input from key stakeholders, such as the sponsor and users. This paper addresses incentives that can be employed to encourage life cycle cost perspective. It examines the critical issues associated with understanding and implementing the TOC concept and provides recommendations to assist PMs to knowledgeably execute a TOC plan. Metrics necessary to ensure appropriate implementation are explored. Various methods of controlling and reducing TOC are evaluated, including communication among stakeholders, CAlV documentation, tradeoff analysis, Reliability-Centered Maintenance (RCM); Performance-Based Logistics (PBL), Commercial Operations & Support Savings Initiative (COSSI), Earned Value Management System (EVMS), Activity-Based Costing (ABC), Value Engineering, and lessons from R-TOC Pilots.