Page 95 - Global Project Management Handbook

TOTAL LIFE-CYCLE SYSTEM MANAGEMENT 4-3

Project
Concept initiation

Disposal Assessment
Launch
acquisition

Operation Development

Manufacture
In-service or build
date
FIGURE 4.1 Product life cycle.

design engineering, and purchasing activities necessary to produce the final system. All
activities point toward the in-service date when the system commences operation to
meet the need. The system remains in service until replaced or retired, when it is dis-
posed to complete its life cycle. The key point in understanding the system life cycle is to
understand when decisions must be made to achieve the desired project result of minimiz-
ingcostofownership.
The expenditure of funds over the life of a system typically can be categorized by prod-
uct life-cycle phase. Figure 4.2 shows that the concept and assessment phases account for
an estimated 2 percent of the total cost of ownership. Expenditures during development
and manufacturing are probably around 12 percent of the total. The majority of expendi-

tures occur when the system is being operated and sustained—a whopping 85 percent in
most cases. The thrust of TLSCM is to attempt to reduce the total outlay of funds over the
system life. However, there is a very significant point that is often overlooked and misun-
derstood by many project managers. This is the cause and effect of decisions versus when
the effect of the decision is realized. Figure 4.3 indicates that 70 percent of the cost-of-
ownership decisions are made during the concept phase of the product life cycle. These
are obviously very significant to realize. Early decisions dictate the ultimate cost of
ownership of a system. By the end of system development, probably more than 85 percent
of the cost-of-ownership decisions have been made. The actual expenditure of funds prob-
ably will occur several years in the future, but the decision that causes the requirement for
expenditure has been made.
When project managers make a short-term decision to stay within an acquisition bud-
get or to cut a project schedule, they may be increasing the overall system cost of owner-
ship inadvertently by making a decision that causes long-term expenditure to rise. One of
the obvious ways that this occurs is when poor-quality systems or subsystems are pro-
cured to limit acquisition budget expenditures. Eventually, poor quality induces increases
in maintenance problems, long system downtime, and lost productivity. The short-term
solution creates long-term increases in the cost of ownership.