Evaluation of the cost effectiveness model being developed for the component improvement programs of the Air Force and the Navy.

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by  Crowder, Gerald L.;McMasters, Alan W.;Zirschky, Stephen.

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11.TITLE(IncludeSecurityClassification)
EvaluationoftheCostEffectivenessModelBeingDevelopedfortheComponentImprovementProgramsoftheAirForceandtheNavy
12.PERSONALAUTHOR(S) GeraldL.Crowder
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Master'sThesis From To JUNE 1992 62
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19.ABSTRACT(continueonreverseifnecessaryandidentifybyblocknumber)
ThisthesisexaminestheCostEffectivenessAnalysis(CEA)modelusedbytheAirForcetoassistwiththedecisionmakingprocessoftheirCost
ImprovementProgram(CIP). TheemphasiswasonstudyingthemodelforitsuseintheNavalComponentImprovementProgram. Withan
exampleprovidedbyGeneralElectric,asensitivityanalysiswasperformedtodeterminethecostdriversofthemodel. Fortheexample,themajor
costdriverswerefoundtobetheIncorporationStyle,KitHardwareCost,andtheSparePartFactor. Nextasimplesimulationwasconductedto
determinehowrandomcomponentfailuresaffectthelifecyclecostvariabilityoftheCEAmodel. Theauthorconcludedthatadditional
simulationstudiesshouldbeconductedforothercausesofvariation. Adetailedanalysisofthemodelformulasandassumptionsareneededas
partofausers'manual.
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AlanW.McMasters [phone] AS/MG
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Evaluation ofthe Cost Effectiveness Model
Being Developed for the Component Improvement Programs
ofthe Air Force and the Navy
by
Gerald L. Crowder
Lieutenant, United States Navy
B.A., University ofFlorida
Submitted in partial fulfillment
ofthe requirements for the degree of
MASTER OF SCIENCE IN MATERIAL LOGISTICS
from the
NAVAL POSTGRADUATE SCHOOL
June 1992
ABSTRACT
This thesis examines the Cost Effectiveness Analysis (CEA) model used by the Air Force to
assist with the decision making process of their Component Improvement Program (CIP). The
emphasis was on studyingthe model forits use inthe Naval Component ImprovementProgram. With
an example provided by General Electric, a sensitivity analysis was performed to determine the cost
drivers ofthe model. For the example, the major cost drivers were found to be the Incorporation
Style, Kit Hardware Cost, and the Spare Parts Factor. Next a simple simulation was conducted to
determine how random component failures affect the life cycle cost variability of the CEA model.
The author concluded that additional simulation studies should be conducted for other causes of
variation. A detailed analysis ofthe model formulas and assumptions are needed as part ofa users'
manual.
in
sz
TABLE OF CONTENTS
...................
I. INTRODUCTION 1
A. BACKGROUND 1
.
B. OBJECTIVES 2
C. METHODOLOGY 2
D. ORGANIZATION OF THE THESIS 3
II THE CEA MODEL 4
A. BACKGROUND OF THE MODEL 4
. .
B. FORMAT OF THE MODEL 4
C. DESCRIPTION OF INPUT PARAMETERS 1.0 THROUGH
21.0 5
D. DESCRIPTION OF INPUT PARAMETERS 22.0 THROUGH
53.0 9
E. THE RESULTS SUMMARY SECTION 14
III. MODEL ANALYSIS 16
A. INTRODUCTION 16
B. LIFE CYCLE COST 16
C. LIFE CYCLE COST MODELS 17
1. Elements Associated with Life Cycle Cost
Analysis 18
IV