L-308 Monte Carlo Analysis of Life Cycle Costing for Munition Health Management: Two Case Studies

This report explores some of the information, decisions, and benefits of performing Monte Carlo simulations in the context of Munition Health Monitoring (MHM) and the impact on life cycle costs. Two case studies from a previous report, L-257, are used to examine aspects of decision making. To run a Monte Carlo simulation, the values for the input parameters are selected at random from each of their respective distributions, the model is calculated using that set of input values, and the results collected.

In the first case study, the effect of improved information on the risks involved in decision making can be seen: the sensitivity of the confidence of the cost analysis is a function of the information provided. Furthermore, steps to obtain good information can be identified, taken, and justified in terms of risk mitigation and potential reward.

In a larger project, such as the second case study, the sensitivity of the cost analysis is largely dependent on the cost of a few items or factors: here the cost of a missile dominates, being over two million euros each. Whatever the software package used, it should have the capability to execute Monte Carlo simulations with reasonable input distributions.