Impact of Subsystem Reliability on Satellite Revenue Generation and Present Value

Abstract

A new framework is developed that analytically links an engineering concept, a system's reliability, with both managerial and financial concepts, the system's revenue generation capability, and its present value. A communications satellite is used as an example to illustrate the use and insights that can be generated from this framework. For instance, after the development of a revenue model for a communications satellite, the cost of unreliability was quantified: the present value penalty for the lack of 100% payload reliability. Next, the value of redundancy was also analytically captured: the satellite incremental present value provided by payload redundancy. The central finding is that present value calculations of a technical revenue-generating system, in this instance, a communications satellite, that do not account for system's reliability overestimate the system's present value and, thus, can lead to flawed investment decisions. Finally, when sensitivity analysis is performed on the various drivers of the satellite present value, it was found, against conventional wisdom, that redundancy in communications satellite payload is overrated; in other words, that increasing payload redundancy provides limited incremental value to the spacecraft.