Vanguard Magazine

20 FEBRUARY/MARCH 2025 www.vanguardcanada.com P R O J E C T M A N A G E M E N T I n October 2022, Canada's Parlia- mentary Budget Officer (PBO) gen- erated a report that assessed the life cycle cost estimate (LCCE) at $306 billion Cdn for 15 River Class de- stroyers being acquired under the Cana- dian Surface Combatant (CSC) project. One media report dubbed it "more torpe- does" of the project and quoted a former procurement chief of the Department of National Defence as saying the project was "out of control". But does an LCCE justify such claims? The PBO's LCCE appropriately includes four phases of the ship's life cycle: devel- opment (options analysis, studies, R&D), acquisition (purchase, construction, inte- gration into service), operations and sus- tainment (ships' deployments, support & maintenance, technology insertion, mid- life upgrade) and disposal (demilitariza- tion, dismantling or destruction of sys- tems, disposal of hazardous materials, sale of parts and metal scrap). Canada has directives that require a cost estimate "when decision-makers consider whether to undertake an investment" and when making procurement decisions that are based in part on "full life-cycle costs whenever possible". Missing is a definition of when an LCCE is not possible. Given the Parliamentary Budget Office's (PBO) report was released in 2022, one wonders whether the LCCE and the po- tentially growing project acquisition costs could be the reasons that Canada's Arctic Foreign Policy (December 2024) indi- cated that the CSC project would deliver "up to 15" River Class destroyers. Until now, 15 was the definitive number and the minimum number of surface combatants defined as required by the RCN. There is also a wide body of knowledge on the Internet – particularly in terms of accounting institutions – suggesting that LCCEs should be employed to select be- tween two or more options based on the lowest life cycle cost. I personally have heard a foreign naval costing official state that the only credible employment of war- ship LCCEs is to assess the anticipated life cycle annual costs of various procurement options around the fifth-to-tenth year point, to inform bid evaluations. One of the most comprehensive docu- ments on the subject is the U.S. Cost Es- timating and Assessment Guide - Best Practices for Developing and Managing Program Costs produced by the General Accounting Office in March 2020. It identifies what constitutes a proper LCCE. Aside from the two obvious attributes of comprehensiveness and accuracy, they also call for the LCCE to be well-documented (e.g. traceable to the original sources of evidence, the rationale and the assump- tions employed for each cost element) and credible (e.g. identifies the level of uncer- tainty of the analysis in terms of the risk of both source data and assumptions, as well as the LCCE's sensitivity to source data risks and major cost-driving assumptions). The literature indicates that various LCCE estimating methods are in com- mon use, both individually and in combi- nation. Generally, the methods are based on the historical data of comparable assets (e.g. the Halifax Class frigates or United States Navy equivalent surface warships). These are then analyzed employing para- metric models, regression analysis and/or cost estimate relationships. Variations on these approaches were employed in three separate estimates in the PBO's River Class destroyer LCCE report, with the three re- sults averaged to generate the single point estimate of $306 billion. Neither the concept of a LCCE to in- form decisions nor the approaches used to produce such estimates are in question. Rather, the issue is understanding how confident we can be in these estimates, given that their reliability depends on a va- riety of factors, some of which are identi- fied below: • the accuracy of the historical information for one or more comparable exemplars; • the comparability of the exemplars' op- erational profiles and major equipment systems' maintenance requirements to the new platform being acquired; • where knowledge is lacking in areas such as new technologies, inflation indexes, foreign exchange impacts (e.g. for sys- tems being repaired-by-replacement by offshore original equipment manufac- turers) and economic crises (recessions, pandemics) over the 25–30-year life of a platform, the large numbers of assump- tions involved and the variances in levels of agreement by experts; • the potential for significant variations in the type, number and impact of disrup- tors between the historic comparator(s) LIFE CYCLE COSTING OF CANADIAN MILITARY ASSETS B Y I A N M A C K River class Destroyer (DDGH). Photo: Royal Canadian Navy

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