Cost beniefit analysis training for decision makers and manager step5

• In the CBA, the most important benefits to include for each COA are the primary benefits: the benefits most relevant to the objective being sought.. • Primary benefits should answer t

AMERICA’S ARMY: THE STRENGTH OF THE NATION

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

Step 5: Benefits

Key Learning Objectives

Objectives:

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7 Compare Alternatives

6 Define Alternative Selection Criteria

6 Define Alternative Selection Criteria

5 Identify Benefits

4 Develop Cost Estimate for Each Alternative

3 Define Alternatives

2 Define Scope; Formulate Facts and Assumptions

1 Define Problem/Opportunity and Objective

Step 5: Benefits

• “Benefits of a chosen alternative are results expected in return for costs incurred They are the quantitative and qualitative results expected or resulting from the implementation of a project/initiative (which may include but are not limited to the following: equipment, facilities, hardware, systems, etc.).”

(CBA guide, “Step 5”)

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Definition: Benefit

• In the CBA, the most important benefits to include for each COA are the primary benefits: the benefits most

relevant to the objective being sought

• Primary benefits should answer the question, “How does this COA serve as a solution to the stated problem?”

Primary Benefits

Problem Statement COA description Primary benefit of COA

Product manufacturing time exceeds the limit specified by mission requirement by 15%

Expand manufacturing facility and personnel

by 20%

Product manufacturing time expected to be reduced to 10% under mission requirement limit

Current residential facilities insufficient to accommodate influx of 400 new soldiers due

to upcoming BRAC

Move 400 civilians currently living in temporary on-base quarters to off-base housing.

COA will vacate living quarters for the 400 new soldiers expected on base.

• When most or all of the COAs under consideration have nearly identical primary benefits then it will be necessary

to consider and include Secondary benefits Secondary benefits answer the question, “How well does the COA

solve the problem?”

– Secondary benefits can include: reliability, feasibility, amount of training required, ease of acquisition, time required for

implementation, and other “perks” like resale or reuse value.

• Secondary benefits receive less weight than primary benefits, but they may be used to distinguish between COAs that provide similar primary benefits

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Secondary Benefits

Identifying Benefits

When identifying benefits, consider the following:

1. The CBA problem statement (from Step 1) usually states or implies a desired benefit (the primary benefit) Ask

the question: How well does this COA achieve the benefit implied in the problem statement?

• CBA problem statement: Identify the optimum process to achieve timely, error-free submission of personnel performance appraisals.

– The clearly stated benefits or metrics are (a) timely submission and (b) error-free submission.

2. If a COA appears to deliver relevant benefits that are not encompassed by the problem statement, perhaps

analysis should be modified

3. Are the benefits objective, and can they be quantified?

• Quantifiable vs difficult to quantify

– Quantifiable benefits can be measured

• Objective vs subjective

– Objective benefits are matters of fact

– Subjective benefits are matters of opinion

• Note that difficult to quantify is not the same as subjective.

– Some subjective benefits can be quantified

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Types of Benefits

• The table indicates the possible array of benefits, with examples in each cell

Types of Benefits (cont’d)

Quantifiable Difficult to Quantify

Subjective Customer satisfaction Morality

Flexibility Adherence to policy Life, safety, health

Objective Order-ship time

Cycle time Error rate Vehicle speed Weapon survivability

N/A – All objective benefits can be measured, usually with a number or sometimes with a yes/no indicator.

– Relevant

– Reasonable

– Specific

– Logical

– Clear

• Try to identify benefits driving the decision

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Desired Characteristics of Benefits

 Objective benefits facilitate the decision-making process,

because they help to remove opinions and emotion from the discussion They build the strongest case for the preferred COA.

 Overstatement of benefits is the primary source of bias in CBAs It is difficult to overstate objective benefits.

 Objective benefits facilitate the decision-making process, because they help to remove opinions and emotion from the discussion They build the strongest case for the preferred COA.

 Overstatement of benefits is the primary source of bias in CBAs It is difficult to overstate objective benefits.

Well-Crafted Benefits

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Benefits should be CLEAR.

– COA 1 improves ARFORGEN greatly (or color code green).

– The improved system in COA 1 has 20% fewer required user inputs, an easier to read interface, and reduces the expected training/orientation time by 2 hours per user.

Benefits Best Practices

Problem Statement: “We need a more user-friendly IT ARFORGEN tracking

system.”

Benefits should be SPECIFIC.

– Alternative 1 increases Doctrinal Currency, Soldiers trained and current in their duties.

– Alternative 1 provides a trainer-student ratio of 1:10 This will enable trainers to spend more time with each

student and help them achieve the desired degree of proficiency.

Benefits Best Practices (Cont’d)

Problem Statement: “We need to achieve satisfactory levels of proficiency

in job related tasks.”

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Benefits Best Practices (Cont’d)

Benefits should be RELEVANT.

– COA1 provides clear communications between infantry and armor units.

– The addition of an auto-loading 120 mm mortar in COA1 allows the Main Battle Tank to fire beyond the line of sight,

increasing the current range by 5,000 feet This will enable an armor company to provide the indirect fire capability comparable to 3 infantry heavy mortar platoons, and with no measurable reduction in mobility.

Problem Statement: “We need an extremely mobile weapon platform that can

provide indirect fire support to assist in ground operations.”

• In identifying benefits, address one COA at a time … comparison comes later

• Benefits can be financial or operational / functional

• Objective benefits remove emotion and bias from the decision-making process

• Develop benefits that are

– Relevant

– Reasonable

– Specific

– Logical

– Clear

Summary

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Exercises

For the following COAs, what metrics would enable a good comparison of benefits and/or risks?:

1. Build a permanent steel bridge across the Amazon

2. Build a collapsible aluminum bridge across the Amazon

3. Ford the river

4. Use makeshift rafts to float supplies across

5. Turn around and head back to Sao Paulo, and charter a plane across the Amazon

Problem Statement: “Need to transport 4,000 lbs of medical supplies from one bank

of the Amazon River to another within 96 hours to support an Army humanitarian

mission in Brazil.”

• 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

Review Exercise: Henry Ford

• Identify primary and secondary benefits for each of the following Courses of Action:

– COA1 (Status Quo): Leave the car in the garage, do nothing else.

– COA2: Disassemble the car and reassemble it outside the garage.

– COA3: Obtain permission of garage landlord to widen the garage door.

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Review Exercise: Henry Ford

• The Chief of Staff, Army has apportioned $1.2B for the procurement of customized “Longbow Apache 2” helicopters and “Abrams 2” tanks in support of the troop surge in Iraq Each

customized Apache helicopter may be purchased at a flat rate of $60M each Due to increasing marginal costs of production, the price for the Abrams tank is semi-variable The first 24 tanks produced can be purchased at a rate of $10M each; the next 40 tanks can be procured at a rate

of $12M each; every subsequent tank purchased beyond these first 64 will cost $15M each [Note: Fictional]

Mini-case Exercise #5

or “how many can I get for $1.2B?”

• U.S Army Central Command has secured $118M 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 $5M each and weighs 27,000 pounds The class X HIMARS 2 costs

$7M and weighs 12,000 pounds The class X model is produced using a rare metal: no more than

14 may be procured After procurement, all the HIMARS 2 will be transported to Afghanistan by

a fleet of ten C-130 Hercules aircraft The total weight constraint is 405,000 pounds.

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Mini-case Exercise #6

or “where do the lines cross?”