Opportunity andequivalent costs are not a separate category of life cycle costs. Instead, these costs can be associated with any category of life cycle costs. An opportunity cost refers to a loss of revenue or the cost associated with a lost opportunity to invest in a desired manner or to earn income. An equivalent cost is any cost not readily measured in terms of dollars. Two examples follow.
One example of an opportunity cost would be the revenue "lost" by airline A when passengers are re-booked on airline B, after airline A's aircraft was taken out of service because a failure could not be fault isolated in time for the flight. Potential revenue is lost and cannot be recovered. This lost revenue may not normally be recorded as a cost of operation but has the same effect on profit as does any other cost. In this case, the opportunity cost would be an O&M cost.
The next example illustrates both an equivalent cost and an opportunity cost. A military service needs and has sufficient funds to purchase, operate, and maintain 100 new cargo aircraft to meet a mission need over the next 20 years. The quantity of 100 is based on the aircraft meeting certain availability requirements. If an aircraft is bought but falls short of its availability requirements by 10% due to poor maintainability performance, the military customer has two alternatives5: meet only 90% of mission requirements (equivalent to having purchased only 90 aircraft) or increase availability. If the first alternative is selected, the equivalent cost would be the inability to perform the mission. If the second alternative is selected (additional aircraft are purchased, an improvement program is implemented, or additional spares and other logistics resources are purchased), funds diverted from other purposes to increase availability would represent an opportunity cost. In either case, the cost could be considered an O&M cost.
5 Assume that the aircraft manufacturer cannot be made to improve the aircraft or provide additional aircraft at no cost to the government. In view of actual historical cases, this assumption is not unreasonable.