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

[1] http://www.mod.go.jp/atla/souhon/about/pdf/26lifecyclecost_houkokusyo.pdf

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
5SS Oyashio 2 Toshiba motors	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	15 Mar 2013	2 Nov 2015	13 Mar 2017	KHI
25SS	8124 Seiryū	SS-509	¥53.1B FY2013	LABs + AIP	22 Oct 2013	12 Oct   2016	12 Mar 2018	MHI
26SS end of SMC-8s	8125 Shoryū	SS-510	¥51.7B FY2014	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	¥64.4B FY2015	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 12V25/31S 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 Matters. LABs = 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