October 30, 2018

Japanese Examination of Life Cycle Costs of Submarine Building

Anonymous has kindly provided the following model of  Life Cycle Costs of Submarine Building (with referencee to FY2014 Annual Report on Life Cycle Cost Management, 30/May/2015, by the Acquisition, Technology & Logistics Agency (ATLA), Japanese Ministry of Defense (MoD)
 http://www.mod.go.jp/atla/souhon/about/pdf/26lifecyclecost_houkokusyo.pdf noting "there is no intention to criticize others."

[Pete Comment - This examination is highly complex as it is:

-  translated from Japanese language, and
-  uses accounting assumptions and methodology
-  and within that, Japanese accounting assumptions and methodology which have different yearly start and finish milestone conventions eg. when looking at "27SS" (see TABLE for SORYU & Oyashio Program at the end of this article) what year was 1SS? 


Thorough Management policy of defense spending by Germany brought possible sale of TKMS by ThyssenKrupp, but, there is something to learn.

Though the batch building system has adopted in Japan for submarines to maintain naval superiority, this system has not been adopted by Australia because of Australia's defense budget constraints. Instead, Australia's indigenous submarine building project adopted a system that also satisfies demands of employment and industry.

If Australia's top priority is maintenance of regional superiority, it could consider the introduction of a batch building system because Australia's indigenous submarine building project does not correspond to submarine updates of naval rivals. Australia could consider participation in a foreign batch building system if this is within reasonable costs and these cost savings are used for satisfaction of demands of employment and industry.

Japan's Life Cycle Cost for Soryus 27SS [launched on October 4, 2018] and 28SS [likely to be launched around October 2019] was estimated based on  
FY2014 Annual Report on Life Cycle Cost Management, 30/May/2015, by ATLA of the Japanese MoD [1]. If all submarines are built in Japan and operate in Australia (Cases 2-4), totat costs are 3, 11 and 16 billion $AU for Cases 2-4, respectively. Considering adoption of US combat system and development cost, increase in total costs presumably become 20% at most. Total cost, when 4 submarines correspond to next Soryu (29SS series) and 4 submarines correspond to next Soryu (post 29SS series) are built in Japan according to batch building system, is around $AU 13B resulting in huge cost reduction [for Australia]. Building of other 4 submarines is determined in accordance with the situation.

Table 1 - [below] Life Cycle Cost of 27SS and 28SS
Case 1              2 submarines, 24 years-operation, including 8-10% consumption tax
Case 2              2 submarines, 30 years-operation, excluding consumption tax
Case 3              8 submarines, 30 years-operation, excluding consumption tax
Case 4              12 submarines, 30 years-operation, excluding consumption tax


Case 1
Case 2
Case 3
Case 4
Classification



Precondition and others
Number of acquisitions [subs]
2
2
8
12
Operation number [sub]
2
2
8
12
Operation period [year]
24
30
30
30
Repair
-

-

Refinement of LCC
-

-

Consumption tax
10%
0%
0%
0%
others
-
-
-
-
Concept stage
Consideration on concept
0
0
0
0
Research on technology
0
0
0
0
Subtotal
0
0
0
0
Development stage
1 year
Research & development
0
0
0
0
Practical test
0
0
0
0
Performance test
0
0
0
0
Design cost
0
0
0
0
Government supply goods
0
0
0
0
Subtotalis
0
0
0
0
Building stage
5 years
First year cost
16
0.02
0.04
0.06
Product cost
1,272
1.50
6.01
9.02
Subtotal
1,288
1.53
6.09
9.13
Operation & maintenance stage

Operation cost
40
0.06
0.24
0.35
Combat service support cost
744
1.10
4.40
6.69
Improvement & repair cost
*
*
*
*
Ammunitions
*
*
*
*
Subtotal
783
1.16
4.63
6.94
Disposal stage
(After 2038s)
Decommission cost
1
0.001
0.005
0.007
Facility
*
*
*
*
Subtotal
1
0.001
0.005
0.007

Total
2,073 x100M Yen?
2.95 $AU Billion
10.72 $AU Billion
16.08 $AU Billion


Reference

FY2014 Annual Report on Life Cycle Cost Management, 30/May/2015, ATLA, Japanese MoD

1. Aim of Life Cycle Cost Management

Life cycle cost (hereinafter referred to as "LCC") Management, cost necessary to acquire the equipment is considered not as mass production unit price, but as the total expenses necessary for the entire process (life) from concept, development, mass production, operation / maintenance to disposal. By LCC management, i) acquisition judgement based on cost effectiveness at the turning point such as start of development or mass production, ii) enhancement of accountability related to cost, and iii) decision making based on cost reduction at the operation and maintenance stages become possible. In this way, the purpose of LCC Management is to optimize the cost of the entire lifecycle of the equipment.

2. Background 

3. Organizations for LCC Management

4. Calculation method of LCC

In calculation of the LCC, break down the cost* related to the equipment was broke down into the various components and each cost component was estimated by using CBS ** in order to predict necessary cost of the equipment in the future.

Data necessary for the calculation are prescribed number of acquisition and data of the similar equipments in the past, etc. Particularly important data are those considered as high proportion in the LCC, i.e., body cost at the mass production stage, cost of supplies and repairment in the operation and maintenance stages. By using these data and the scale ratio (eg., weight ratio) between the equipment and the similar equipment, the cost necessary for the equipment is estimated. In this estimation, the most recent exchange rates are used, and no price fluctuations are assumed.

* Here, “cost” is a price government pays
**CBS (Cost Breakdown Structure: a tool used for planning of project management. CBS is a cost allocation expressed in a hierarchical structure by classifying project costs in detail)

5. Abstract of Annual Report 

6. Composition of Annual Report 

7. Explanation of the equipment whose LCC estimation is different from last year's Annual Report (skip)

8. Annual report for each equipment 

9. Note Expenses such as guided missiles and (actual/training) ammunitions are not included in the LCC estimation.

FY 2015 submarine (27SS submarine), page 77-80 [again see FY2014 Annual Report on Life Cycle Cost Management, 30/May/2015, by ATLA of Japanese MoD
 http://www.mod.go.jp/atla/souhon/about/pdf/26lifecyclecost_houkokusyo.pdf 

1. Outline of the equipment           

2. Performance of the equipment 

3. Method and preconditions of LCC calculation

Common items
Preconditions
Assuming that one submarine in FY 2015 and another same type of submarine within during New Meduim Term Defence Program are acquired, LCC is calculeated.
Assuming that the latter submarine with the same specification as the former submarine is acquired in FY 2016, LCC is calculated.
Operation period of each submarine is 24 years.
Exchange rates until FY2013 are used, and no price fluctuations are assumed.
Each stage
Concept
No contract result
Development
Cost is calculated based on DDD (Design Description Document) of same type of submarine.
Building
Cost is calculated based on result of most recent same type of submarine.
Operation & maintenance
Cost is calculated by using result of resemble goods or services.

4. Prediction line against base line for LCC Estimation (skip)

5 LCC summary table (100JPN Yen = 1.3AU$)



JPN100million Yen
Classfication
Original baseline (FY2014)
Precondition and others
Number of aquisition
2 boats
Operation number
2 boats
Operation period
Ca.24years
Repair
-
Refinement of LCC
-
Consumption tax
*1
others
-
Concept stage
Consideration on concept
0
Research on technology
0
Subtotal
0
Development stage
(2015)
Research & development
0
Practical test
0
Performance test
0
Design cost
0
Government supply goods
0
Subtotalis
0
Building stage
(2015-2020)
First year cost
16
Product cost
1,272
Subtotal
1,288
Operation & maintenance stage
(2020-2038s)
Operation cost
40
Combat service support cost
744
Improvement & repair cost
*
Ammunitions
*
Subtotal
783
Disposal stage
(After 2038s)
Decommission cost
1
Facility
*
Subtotal
1

Total
2,073
*Consumption tax is set 8% and 10% for FY2014-2016 and FY2019-, respectively.

6. Possible factors affect on LCC

TABLE for SORYU & Oyashio Program as at October 30, 2018 

SS
No.
Diesel Type
Motor
Build No
Name
Pennant
No.
MoF approved amount ¥
Billions FY
LABs, LIBs, AIP
Laid Down
Laun
-ched
Commi
ssioned
Built
By
8105 Oyashio
SS-590/ TS3608
¥52.2B FY1993
LABs only
 Jan 1994
Oct 1996
Mar 1998
 KHI
6SS-15SS
Oyashios 
10 subs
2 Toshiba motors
SMC-7?
8106
-8115
various
SS-591-600
¥52.2B per sub
FY1994-FY2003
LABs only
 15SS Feb
2004
15SS
Nov
2006
15SS
Mar 2008
 MHI
&
KHI
16SS
Soryu Mk 1
12V25/25SB
SMC-8
8116
Sōryū
SS-501
¥60B FY2004
LABs + AIP
Mar 2005
Dec 2007
Mar
2009
MHI
17SS
8117
Unryū
SS-502
¥58.7B FY2005
LABs + AIP
Mar 2006
Oct 2008
Mar
2010
KHI
18SS
8118
Hakuryū
SS-503
¥56.2 FY2006
LABs + AIP
Feb 2007
Oct 2009
Mar
2011
MHI
19SS
8119
Kenryū
SS-504
¥53B FY2007
LABs + AIP
Mar 2008
Nov 2010
Mar
2012
KHI
20SS
8120
Zuiryū
SS-505
¥51B FY2008
LABs + AIP
Mar 2009
Oct 2011
Mar
2013
MHI
No 21SS
No 21SS built
22SS
8121
Kokuryū
SS-506
¥52.8B FY2010
LABs + AIP
Jan 2011
Oct 2013
Mar
2015
KHI
23SS
8122
Jinryu
SS-507
¥54.6B FY2011
LABs + AIP
Feb 2012
Oct 2014
7 Mar 2016
MHI
24SS
8123
Sekiryū
SS-508
¥54.7B FY2012
LABs + AIP
KHI
25SS
8124
SS-509
¥53.1B FY2013
LABs + AIP
22 Oct 2013
12 Oct   2016
MHI
26SS
end of SMC-8s
8125
Shoryū
SS-510
LABs + AIP
2014
6 Nov 2017
Mar 2019?
KHI
27SS First
Soryu Mk 2
12V25/25SB 
diesel
first SMC-8B
motor
8126
Oryū
SS-511
LIBs only
2015
4 Oct
2018
Mar
2020?
MHI
28SS  Second
Soryu Mark 2
12V25/25SB
SMC-8B
8127
SS-512
¥63.6B FY2016
LIBs only
2016?
Oct 2019?
Mar 2021?
KHI
29SS First Soryu Mk 3
SMC-9?
8128
?
¥76B FY2017
LIBs only
?
?
2023?
MHI?
30SS Second Soryu Mk 3
12V25/31S
8029?
?
¥71.5B FY2018
LIBs only
?
?
2024?
KHI?
Table from information exclusively provided to Submarine MattersLABs = lead-acid batteries, AIP = air independent propulsion, LIBs = Lithium-ion Batteries. ¥***B = Billion Yen. MHI = Mitsubishi Heavy Industries, KHI Kawasaki Shipbuilding Corporation of Kawasaki Heavy Industries. 
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Anonymous

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