Cost beniefit analysis training for decision makers and manager step1

Define Problem/Opportunity and Objective • The Background/Strategic Context – Provides the contextual information needed to understand the problem, need, or opportunity addressed in the

AMERICA’S ARMY: THE STRENGTH OF THE NATION

Cost-Benefit Analysis (CBA) Four-Day Training Briefing

Step 1: Problem/Opportunity and Objective

Key Learning Objectives

CBA team members will:

– Problem/Opportunity

– Objectives

– Background

8 Report Results and Recommendations

7 Compare Alternatives

6 Define Alternative Selection Criteria

6 Define Alternative Selection Criteria

5 Identify Quantifiable and Non-Quantifiable Benefits

4 Develop Cost Estimate for each Alternative

3 Define Alternatives

2 Define Scope; Formulate Facts and Assumptions

1 Define Problem/Opportunity and Objective • The Background/Strategic Context

– Provides the contextual information needed to understand the problem, need, or opportunity addressed in the CBA.

• The Problem/Opportunity Statement:

– Defines unfulfilled customers’/stakeholders’ needs and expectations

– Defines an opportunity to optimize/improve the performance of a product and/or service for the end user

• The Objective:

– Describes the role of the CBA: what is the decision to be made, and how does the CBA inform and support it What

is the purpose of the analysis?

• Background:

– Discusses the circumstances that describe a need for the CBA

Step 1 Overview: Define Problem/Opportunity

and Objective

Key Questions:

1

• “The background and circumstances define and assess the current state/condition They provide the contextual information needed to fully understand the problem, need, or opportunity

addressed in the Cost Benefit Analysis” (CBA Guide, “Step 1” https://cpp.army.mil )

Background/Strategic Context

to help the reader understand various aspects of the problem

– The context in which the problem exists

– The guidance from senior leaders that establishes the importance of the requirement

– The history of how the current situation came to exist

Problem/Opportunity Statement

Background and Strategic Context

The status quo might not be a valid option if the required performance is not being achieved For example:

– If the CBA addresses a new requirement – one that is currently not being accomplished either well or poorly – there might not

be a status quo.

– If the CBA objective is to improve output to a level that far exceeds the current level, there might not be a status quo In this case, the implicit decision has already been made to select a COA beyond the status quo.

– If the status quo achieves the desired output but does so at a high cost, the status quo might not be considered a valid

alternative.

Background and the Status Quo

problem or opportunity statement, the key is to state the problem or opportunity in terms of the organization’s mission that requires a solution to describe what the effort intends to accomplish.” (CBA Guide, “Step 1”,

https://cpp.army.mil)

Problem/Opportunity Statements

Problem/Opportunity Statement Key Questions

Define the problem/opportunity succinctly in terms of Who, What, When, Where, and Extent

The Problem/Opportunity Statement should include this information.

 Who is experiencing the issue?

 Who will receive the benefits from an improved product or service?

 Specifically, who are the stakeholders/process owners?

 What required performance is not being achieved?

 What are the problems being addressed: defects, delays, rework, mistakes, etc.?

 When, how, and where does the problem/opportunity occur?

 When did it begin? This could be as simple as “as long as we know”

 What is the extent of the problem in terms of magnitude or trend (changes in magnitude)?

WHO

WHAT

WHEN/HOW/

WHERE

EXTENT

Determining Unfulfilled needs

Observations Problem/Opportunity

I am always transferred to three or more different people

Quality of Service:

Sorting of incoming calls, assignment of the correct

assistant to customer

I’m getting my bill

at different times

of the month

Delivery of Service: Lack of consistent standard for delivery

date

It takes too long to process the application Efficiency of Process:

Loan Cycle Time

Common Mistakes

• Problem stated as predetermined solution instead of as problem, as in the form, “We need

more money.”

• Problem does not reflect the stakeholder concerns

• Problem is based on anecdotal information

1) The total operating budget at Fort Hampton (in then-year dollars) has increased at a rate of 2.5% per year for the

past 8 years, while the inflation rate for the same period has remained constant at 3% per year This fiscal year, the budget has been abruptly cut by 10% compared to the previous year Two hundred HMMWVs

manufactured each year are temporarily stored in a facility at Ft Hampton, which will soon be under repair and unavailable for use

Determine the correct problem statement

Problem/Opportunity Statement Exercises

1) The total operating budget at Fort Hampton (in then-year dollars) has increased at a rate of 2.5% per year for the

past 8 years, while the inflation rate for the same period has remained constant at 3% per year This fiscal year, the budget has been abruptly cut by 10% compared to the previous year Two hundred HMMWVs

manufactured each year are temporarily stored in a facility at Ft Hampton, which will soon be under repair and unavailable for use

Solution: Because the current storage facility at Ft Hampton will soon be unavailable for use, the Army must

determine the best way to store HMMWVs.

Problem/Opportunity Statement Exercises

major supply route Determine the problem statement and objective

Problem/Opportunity Statement Exercises

2) The Commander, USCENTCOM has asked for a comparison of three alternatives for clearance of IEDs along a

major supply route in Afghanistan Determine the problem statement and objective

Solution: Problem statement—IEDs placed along major roads threaten the lives of coalition troops and the

movement of critical supplies Objective—to inform Commander, USCENTCOM decision on alternatives for IED clearance.

Problem/Opportunity Statement Exercises

Defining the problem/opportunity is the first step in developing

a CBA; however, it is important to collaborate with CBA key

players to ensure leadership agrees that the CBA addresses the

decision

Validate the CBA Problem/Opportunity

Example - Stakeholders in the Army

Typical Stakeholders by CBA

“Detrick Earth Station Direct Communications Link In-sourcing Initiative” Dept of State, White House Communications Agency, OSD, U.S Northern

Command

“US Army Pacific G-2X (CI/HUMINT)” U.S Army Pacific Command, TRADOC, Intel CoE, NETCOM

“Reserve Components Soldier Medical Support Center” U.S Army Reserve Command, G1, OSD, Dept of Veterans Affairs

“Command Chief Warrant Officer Cost Benefit Analysis” USAR, Operational & Functional Commands, Expeditionary Sustainment

Commands

“Transition of the Combat Support Agency Command” Combat Support Agency Command, Military Intelligence Readiness Command

“Stryker Cost Benefit Analysis” Army Capabilities Integration Center, FORSCOM, AMC, G8 FD, ASA(ALT)

inform and support it? What is the purpose of the analysis?

Objective Statement

security function at Camp Victory.”

Objective Statement: Examples

of June 4, 1896 He had spent $250 FY1896 dollars on equipment to build the car, and $100 on labor The garage cost $15 per month to rent After the car was assembled, it was clear that it would not be able to fit through the door of the rented garage The car was to be used as a model for the two-year long test-driving phase of his R&D process, with the final goal of arriving at a model for mass production and sale Determine the correct

problem/opportunity statement and objective

Review Exercise: Henry Ford

of June 4, 1896 He had spent $250 FY1896 dollars on equipment to build the car, and $100 on labor The garage cost $15 per month to rent After the car was assembled, it was clear that it would not be able to fit through the door of the rented garage The car was to be used as a model for the two-year long test-driving phase of his R&D process, with the final goal of arriving at a model for mass production and sale Determine the correct

problem/opportunity statement and objective

Solution: Problem statement—the next phase of Ford’s R&D process cannot proceed without a drivable car Objective

—to inform Ford’s decision on how to obtain a car for test-driving.

Review Exercise: Henry Ford