COST & RISK ASPECTS OF SPACE PROJECTSspace-lt.eu/failai/Prezentacijos/Walter Peeters_Cost and...Riga, October 2010 Prof. W. Peeters 2 Price Aspect of Space Projects •Cost overruns

NordicBaltsatProf. W. Peeters

COST & RISK ASPECTS OF

SPACE PROJECTS

Walter Peeters

Faculty Space Business and Management

International Space University

Riga, October 2010Prof. W. Peeters 2

Price Aspect of Space Projects

• Cost overruns

• Countermeasures– Life cycle Costing

– Cost Estimation

– Price type

– Cost control / Risk management

– Insurance


Cost Overruns

• Mercury:

– Cost overrun of 120%

– Development time: 2.25 times originally scheduled

• Apollo:

– Cost overrun: 25% (time factor)

• US Shuttle:

– 1970: 500 missions in the 80’s @ 10.5 million $/mission

– Now: 100 missions in 20 yr. @ 400 million $/mission

• OMB (NASA Astronomy/Astrophysics):

– 2005: 42.9% cost overrun (35.7% in time)




Cost Overrun Countermeasures (5C)

• Before the contract:

– Own Cost Estimate

– Consider the Life Cycle Cost

• Negotiation:– Choice of the Contract type

• Project execution:– Cost Control and Risk management

– Communication with Insurance Broker


Design to Life Cycle Cost (LCC)

• Operational cost increased in NASA budget from 20 tot 40% in 20 years.

• APOLLO SHUTTLE

Phase A

Phase B

Phase C/D

Phase E

Phase A

Phase B

Phase C/D

Phase E


Design to Life Cycle Cost (LCC) (2)

• 1:3:6 rule for complex systems. (maintainability)

0% 20% 40% 60% 80% 100%

Demo

Dev

Prod

1st Ops

LCC committed

LCC spent

Commitment of Life

Cycle Cost per phase


Contract Types(1)

• Cost Reimbursement vs. Fixed Price.

– CPPF (Cost Plus Percentage Fee)

– CPFF (Cost Plus Fixed Fee)

– CPIF (Cost Plus Incentive Fee)

– FPE (Fixed Price with escalation)

– FFP (Firm Fixed Price)


COST ENGINEERING OF

SPACE PROJECTS


Costing methods (1)

• Three main techniques (in order of complexity):

• Cost by Analogy

• Parametric Cost Estimation

• Engineering Cost Estimation (‘Grassroots’)

• Note : Cost by Comparison not considered


Costing methods (2)

• Cost by Analogy

• Based upon knowledge of a similar system

(example Ariane versions)

• Requires a good knowledge of both systems!

• With similarity knowledge : 6/10th rule :

• Costb = Costa x (Sizeb/Sizea)

• with = 0.6


Costing methods (3)

• Grassroots

• Based upon the lowest level of the Work

Breakdown Structure.

• Estimate of labor and material for each element

• Very time-consuming and not applicable in the

first phases of the project.

• More used in traditional sectors (construction

uses the ‘Bill of Quantities’)


Costing methods (4)

• Parametric Costing

• Based upon Cost Estimation Relationship

(CER), whereby a relation is made

(regression analysis) on the basis of historical

data.

• 1950 : developed by RAND Corporation

• 1975 : PRICE (marketed by RCA)

• 1980 : TRANSCOST (Koelle)


Parametric Costing (Aircraft)


Parametric Costing (System level)


Parametric Costing (Avionics)

•

1

10

100

1000

10 100 1000

Unit Mass (kg)

Fir

st U

nit

Pro

du

ctio

n (

M-Y

r)

PBS

Tiros-N

Eurostar

Marecs

Olympus

Landsat

ATS-6

ColFF

C1=0.856 Mkg0.95


Parametric Costing Relationship

Cost = constant. f. (size) xp

Cost in person-yr

Best fit from past projectsor fit to similar example

Often Mass

Similaritymultiplier

0.3 < xp < 1.0


Parametric Costing (examples)

• All in (FY00$K)

• Structure : 175 X 0.83 (235 - 1,153 Kg)

• AOCS : 464 X 0.867 (20 - 160 Kg)

• IR sensor : 356,851 X 0.562 (0.2 - 1.2 m)

• Flight S/W : 435 x KLOC

(KLOC = thousand of line of codes, with Ada=1,

UNIX-C = 1.67 etc.)


Parametric Costing

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Costing methods : generic problems

• Problems with historical data

• Inflation and currency

• (better: in person-years)

0

20

40

60

80

100

120

140

160

180

1985 1990 1995 2000 2005

USD Value


Costing methods overview

• Parametric model

– Pro : Applicable at system level, early identification of the

cost drivers

– Contra: Traceability of historical data

• Analogy model

– Pro : Quick, assumes historical data

– Contra : sensitivity

• Grassroots

– Pro : Real data, accurate

– Contra : requires detailed design, expensive

and time-consuming


SPACE INSURANCE


Premium Income versus Claims(Launch and In-Orbit Combined)

-$1.5

-$0.5

$0.5

$1.5

$2.5U

SD

Billio

ns

Premium

Claims

Gross Margin

Previous 5yr. Gross Margin

Source : AON,2009

$0.0

$0.5

$1.0

$1.5

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

Year

Ca

pa

cit

y U

SD

Billio

ns

0%

10%

20%

30%

40%

L+

1 y

r. R

ate

(%

) Theoretical Capacity Maximum Rate Typical L+180/365 Rate Minimum Rate


Margin in rates : launcher success rate

Source : AON,2009


Communication with Insurer (BSS702)

Source : AON, 2009

Satellite Sum Insured Status

Thuraya D1 US$ 370 million Settled US$252 million (68%)

Galaxy 11 US$ 290 million Settled US$142 million (49%)

PanAmSat 1R US$ 345 million Settled US$118 million (34%)

Anik F1 US$ 233 million Settled US$128 million (55%)

XM Rock US$ 200 million Settled US$94 million (47%)

XM Roll US$ 200 million Settled US$94 million (47%)


Rough Guide to Premium Rates

• Pre-Launch (transit, etc.):

– 0.25% to 0.6%

• Launch and commissioning and early orbit:

– 11% to 15% of the Sum Insured

• In-Orbit

– 1.4% to 2.0% per annum of the Sum Insured

• Launch Liability

– 0.15% of the Indemnity Limit

NOAA N (2003), 24 bolts 135 M$


References

• Kerzner, H. Project Management (Van Nostrand, 5th ed.), 1995

• ECSS, Cost and schedule management,

(ECSS-M-60A), April 1996.

• Peeters W.A. and Madauss, B., A Proposed strategy against cost overruns in the space sector : The 5C approach. Space Policy, April, 2008, pp. 80-89


References Costing methods

• Larson & Wertz, Space Mission Analysis and Design (SMAD), 3rd ed. (1999)

• TRANSCOST :

Koelle, D., Handbook of Cost Engineering for Space transportation Systems, 7th ed. (2007)

• NASA

http://www.jsc.nasa.gov/bu2/models

• PRICE

http://www.pricesystems.com

Documents

COST & RISK ASPECTS OF SPACE PROJECTSspace-lt.eu/failai/Prezentacijos/Walter Peeters_Cost and...Riga, October 2010 Prof. W. Peeters 2 Price Aspect of Space Projects •Cost overruns