Cost modelling techniques for availability type service support contracts: A literature review and empirical study

Abstract

The traditional distinction between manufacturing and services, both in relation to products and indeed, the actual companies themselves, is getting blurred. Increasingly services are becoming a major part of the company offerings in manufacturing sector. In order to compete in a transformed environment, companies need to assess the cost of their service offerings properly to stay competitive. The research in this paper is focused on enhancing existing knowledge in cost estimation models for availability type support service contracts that focus on equipment availability targets and predefined service levels. Most of the current studies concentrate on product cost estimation rather than on services. The difficulty of this task lies in properly estimating the costs of activities during the long lasting contracts, which in some cases may reach even several decades. The paper first reports the existing knowledge in cost estimating techniques through detailed review of literature and presents the key cost assessment techniques that can be used in estimating the cost of service contracts over its entire life-cycle. The paper investigates different availability type support contracts in defence sector and reports the cost assessment techniques used in practice. The paper presents an integrated framework for costing availability type service contracts based on the literature and practice. The gaps in cost modelling of availability type service contracts and areas for further research are identified.