Simulation-based costing for early phase life cycle cost analysis: Example application to an environmental remediation project

Abstract

Simulation-based costing (SBC) has been slow to be adopted by the traditional cost estimating community. This can be attributed to many factors, including complexity, how to gather data and develop probabilistic inputs, cost of SBC software, and a lack of understanding of the benefits of developing cost versus risk profiles. This article presents an overview of how SBC can be effectively utilized for early phase life cycle cost (LCC) estimation. A formal process for conducting LCC incorporating SBC is presented not only to provide a structured approach but to also convey to stakeholders how such a study is conducted. This article also presents a case study where total ownership cost versus risk profiles were developed using this proposed process in order to support budgetary and planning considerations for a large environmental remediation project. This research argues that SBC is needed during the concept exploration phase because this is when budgets are often fixed and expectations set.