In the following how-to we will take a look at how to use the Skeletal Mesh Reduction tool to add new Level Of Detail meshes to a Skeletal Mesh.
This how-to uses the Mannequin Skeletal Mesh that you can find bundled with the Third and First Person Project Template's.
Steps
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First, locate the Mannequin Skeletal Mesh and double-click it to open it up in the Skeletal Mesh Editor.
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Locate the Asset Details panel and then expand the LOD Settings sections.
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To add new LOD's, set the Number of LOD's from the default value of one to a value of three.
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Then press the Apply Changes button to generate the new LOD levels.
Depending on the complexity of your mesh and the number of LOD's specified,the results may not appear instantaneously.
End Result
Once the LOD generation has completed you can view the newly generated LOD's by going to the viewport of the Skeletal Mesh Tool and changing the Preview LOD option from LOD Auto to LOD 0, LOD 1, or LOD 3 like in the video below.