Life cycle costs for decision support - a study of the various life cycle costs used at different levels of defence policy and management

Debates on many aspects of defence economics - on the scale of defence expenditure, on the allocation of that expenditure to various military capabilities, and on the selection of equipment offering the best value for money - are bedevilled by misunderstandings and misconceptions about the costs of defence equipment. This paper seeks to improve understanding of defence equipment costs by defining a hierarchy of defence equipment within which the direct and indirect life cycle costs of defence equipment may be allocated at different levels. Having reviewed the direct and indirect components of the life cycle cost, this paper then shows how different costing studies for different purposes require different approaches to life cycle costing, and that there is no unique life cycle cost which can be assigned to one particular item of defence equipment. There is instead a range oflife cycle costs, each of which is appropriate for a particular study, and it is important that a quoted cost of an item of defence equipment should be used only in the pertinent circumstances. The paper is written from a UK perspective and accordingly uses British nomenclature, but its principles should be relevant to defence cost studies in other nations.