Cost beniefit analysis training for decision makers and manager step3

Four-Day CBA Training Schedule CBA Introduction and Overview Step 1: Problem/Opportunity and Objective Step 2: Define CBA Boundaries and Parameters Mini-case #1, 2, 3 Capstone Groups A

Version 3.0 (Draft) Last Updated: 10 November 2011

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AMERICA’S ARMY: THE STRENGTH OF THE NATION

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

Step 3: Define Alternatives

Four-Day CBA Training Schedule

CBA Introduction and Overview

Step 1: Problem/Opportunity and

Objective

Step 2: Define CBA Boundaries and

Parameters

Mini-case #1, 2, 3

Capstone Groups Assigned

Step 3: Define Alternatives

Step 4: Develop Cost Estimates for Each Alternative

Mini-case # 4 Step 5: Benefits Mini-case #5, 6

Capstone Case Study Presentation and Review Step 6: Alternative Selection Criteria

Step 7: Compare Alternatives Step 8: Report Results and Recommendations Mini-case Exercises: #7, 8

Capstone Case Study Groups Meet

Day 2 Agenda

• 0830 – 0915: “Step 3: Define Alternatives”

• 0930 – 1200: “Step 4: Developing Cost Estimates for Each Alternative” and Mini-case #4

• 1200 – 1300: Lunch

• 1300 – 1630: “Step 5: Benefits” and Mini-case exercises #5 and 6

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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 Objectives

Step 3: Define Alternatives

• Alternatives:

– Potentially optimal solutions to the Problem Statement, given Scope, Facts, Assumptions, and Constraints

– They should include the status quo or current state, if applicable

Questions for the reviewer:

- Have all feasible alternatives been considered to include alternatives that represent creative thinking?

- Have the alternatives been defined and described clearly to a sufficient level of detail to support the development of a cost estimate?

- Is the status quo included, or is its absence explained?

Use problem solving techniques to identify innovative and robust alternatives.

Define the Status Quo

Status Quo (“As-Is” state):

• The status quo is the “baseline” program, process, or system: the solution that will exist if everything proceeds along the current trajectory

• The CBA must be forward-looking, not historical Therefore, the status quo is not always static—it must account for scheduled changes that might occur within the timeframe of the analysis

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Assess the Status Quo for Viability

Is the status quo a viable alternative?

• Ask this question: Can the status quo solve the problem, given the scope and facts/constraints we’re dealing with?

If the status quo is not viable:

 It should still be costed and mentioned in the CBA.

 In the CBA, explain why the status quo was rejected

• Beyond defining the status quo, there is no prescribed doctrine or methodology for developing other courses of action

• So long as facts, assumptions, and scope are taken into account, any COA that falls within the boundaries and parameters thus defined can be a potential solution to the problem statement Only COAs that are potentially optimal solutions should be included in the CBA.

Developing Alternative Courses of Action

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• The number of possible COAs generally increase with the number of decisions being made

Developing Alternative Courses of Action

• The set of COAs included in a CBA should

– be potentially optimal solutions to the problem

– represent the potential range of solutions

• COAs should not

– be “anchored”: they should not be affected by a psychological bias towards a favored alternative

– be subsets of each other—the COAs should not all be different “flavors” of the same alternative Developing Alternative Courses of Action

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• For example, if the objective of a CBA is to determine what four-passenger car to buy, and if the selection criteria are cost and

reliability:

representative of those solutions that are both expensive and reliable.

a potentially optimal solution.

– A set of COAs that spans a wider range of possible solutions and is also potentially optimal (i.e., spanning a wide range of costs and all reliable) might be COA1: New Porsche Panamera, COA2: New Toyota Corolla, COA3: Used Nissan Maxima with 80,000 miles.

Developing Alternative Courses of Action

U.S Army Central Command has secured $198M for the procurement of two different models of the “HIMARS 2” multiple rocket launcher—class X and class Y—for deployment to Afghanistan The class Y HIMARS 2 costs $9M each and weighs 27,000 pounds The class X HIMARS 2 costs

$11M and weighs 12,000 pounds After procurement, all the HIMARS 2 will be transported to Afghanistan by a fleet of C-130 Hercules aircraft, each with a total maximum payload of 405,000 pounds.

Example: Finding Optimal Solutions

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How do you maximize the total number of HIMARS procured?

If you buy only Class X, you can afford 18.

If you buy only Class Y, you can carry 15.

So is “buy 18 Class X HIMARS” the optimal solution?

Example: Finding Optimal Solutions

Example: Finding Optimal Solutions

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COA 1 (Status Quo)

COA 2

COA 3

COA 4

You can procure 9 Class X and 11 Class Y HIMARS, for a total of 20.

Moral of the exercise: analysis is sometimes necessary to determine the optimal solution.

Example: Finding Optimal Solutions

• DOTMLPF: A methodology used by JCIDS to brainstorm possible solutions within the dimensions of Doctrine, Organization, Training, Materiel, Leadership, Personnel, and Facilities.

• Consult Stakeholders, team members, and subject matter experts.

• Mathematical analysis and/or optimization.

Suggested Methods for COA Development

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Common mistakes

• Proposing the hoped-for course of action along with several obviously less attractive options in an attempt to force the decision in favor of one COA In other words: presenting only one feasible option.

• Adding a course of action where the main difference is the funding solution

Courses of Action

Developing Alternatives: Example 1

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Situation

Because of BRAC moves, the transportation office will have to process property shipments for three times the number of people that it normally supports The current process is based on face-to-face meetings with individuals and manual preparation of forms The increased workload level will last for 3-4 years.

Conventional Solution

Since workload is increasing by a factor of three, the solution is to triple the office’s manpower.

Innovative Problem Solving

 Don’t assume that existing policies, procedures, and standards cannot be changed.

 Consider wide range of solutions, such as:

 Increase manpower staffing

 Outsource part of the process

 Automate the preparation of forms

 Reduce time for face-to-face meetings by enabling individuals to conduct part of the interview online

 Challenge existing requirements for forms and data collection (i.e., the policies and rules that govern the process)

• Problem Statement: a review panel has determined that an annex facility in Arlington, VA housing an Army weapons costing division does not meet information security requirements

• Possible alternatives:

– Determine unmet requirements, and install the necessary modifications to meet them

– Move the costing division to another facility that meets security requirements

– Keep the costing division in its current facility, but only allocate work with a non-sensitive classification

Developing Alternatives: Example 2

Due to BRAC, it is anticipated that demand for electric power at Ft Good will decrease by 40% There are currently five separate power plants supplying electricity exclusively to Ft Good, with full operational capacities of 1.2 GW (gigawatts), 1.8 GW, 0.8 GW, 1 GW, and 1.5GW Normal operational capacity is 75% To run each plant, there is a fixed cost of $1M per month, and a variable cost of

$0.5M per GW-month If the objective is to reduce cost where possible, propose at least four alternative courses of action for this (fictional) scenario

Developing Alternatives: Exercise

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• In a rented garage at 58 Bagley Street in Detroit, Henry Ford completed his first gas-powered car on the morning

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 Define possible alternative

Courses of Action.

Review Exercise: Henry Ford