Comparative Life Cycle Cost

A case study of the costs for two Army tanks, XM-1 and M60A3, demonstrated the importance of life-cycle cost comparisons. The XM-1 main battle tank was developed to succeed M60 series tanks which have been produced for 17 years.

Comparing only acquisition costs, the XM-1 is twice as expensive as the M60A3. When life-cycle costs (totals for buying, operating, and maintaining tanks) during a 20-year period are considered, the XM-1 costs about 20 percent more because of large, nearly equal maintenance and operation costs for the two tanks. Thus, the XM-1 need be only 20 percent more cost effective, and the consensus of Army studies has been that its cost effectiveness compared to the M60A3 is considerably more than this percentage. Cost estimates made before starting production are subject to uncertainty such as inflation and other factors. Cost estimate assumptions were examined, and the sensitivity of XM-1 costs to these assumptions was reflected in life-cycle cost data. Weapon systems decisions are not made solely on cost or effectiveness data. For example, NATO weapons standardization programs offer possible economies in research and development and logistics, but other costs may be higher. Foreign military sales can help recoup development costs of weapons systems, but the market for these is not highly predictable.