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Step 5: Identify Quantifiable and Non-Quantifiable Benefits Benefits: The quantitative and qualitative results expected as a result of implementing an alternative. Identify benefits one COA at a time no comparison of COAs is done at this point. Benefits provide the starting point for identifying alternative selection criteria (Step 6). Best source for identifying benefits: Subject matter experts Two broad categories: Quantifiable benefits are measurable they can be assigned a numeric value. Non-quantifiable benefits cannot be measured with any reasonable accuracy or possibly at all. Questions for the reviewer: Do the perceived benefits reflect an enterprise perspective? Are the benefits consistent with the problem statement? 1 CBA Training Slides 8. Report Results and Recommendations 7. Compare Alternatives 6. Define Alternative Selection Criteria 5. Identify Quantifiable and Non- Quantifiable Benefits 4. Develop Cost Estimate for each Alternative 3. Define Alternatives 2. Define the Scope; Formulate Facts and Assumptions 1. Define the Problem/Opportunity Slide 2 Typical Types of Benefits Objective Benefits Cost (wide range of cost data can be developed) Cycle time or material usage Revenue generated from sales of assets Readiness ratings Number of documents processed Subjective Benefits Customer satisfaction Morale Mission capability Quality of service Risk to Soldiers and other personnel Public perception of the Army The analysis should clearly identify what the Army will get in return for the costs that will be incurred. 2 UNCLASSIFIED CBA Training Slides All objective benefits are quantifiable Usually quantifiable Usually not quantifiable Slide 3 3 Step 5 Identify Quantifiable and Non-Quantifiable Benefits Case StudyChoosing An Item From A Lunch Menu Guidelines for Identifying benefits What are the expected benefits from each COA individually Benefits provide a starting point for identifying selection criteria Best source for identifying benefits are the subject matter experts Slide 4 4 Step 5 - Identify Quantifiable and Non-Quantifiable Benefits QUANTIFIABLE NON QUANTIFIABLE BENEFIT COA Case Study:Choosing An Item From A Lunch Menu Slide 5 5 Step 5 - Identify Quantifiable and Non-Quantifiable Benefits QUANTIFIABLE (Sat. Fat) 022g42g14g41g NON QUANTIFIABLE None Taste Hunger Satisfaction Taste Hunger Satisfaction Heart health Hunger Satisfaction Taste Hunger Satisfaction BENEFIT COA SKIP LUNCH PIZZA & BEER BURGER & COKE GREEK SALAD & MINT TEA CHICKEN PARMIGIANA & DIET COKE Case Study:Choosing An Item From A Lunch Menu Slide 6 Step 6: Define Alternative Selection Criteria Alternative selection criteria are the standards upon which the decision will be based. CBAs must contain documentation that identifies the recommended decision criteria and the extent to which each alternative satisfies each of the criteria. Questions for the reviewer: Are the selection criteria appropriately tailored to the problem statement or requirement? Has appropriate consideration been given to both cost and non-cost criteria? If weighting of selection criteria has been used, has the leader agreed with the weighting? Do the selection criteria appear unrealistically skewed to favor one alternative? 6 CBA Training Slides 8. Report Results and Recommendations 7. Compare Alternatives 6. Define Alternative Selection Criteria 5. Identify Quantifiable and Non- Quantifiable Benefits 4. Develop Cost Estimate for each Alternative 3. Define Alternatives 2. Define the Scope; Formulate Facts and Assumptions 1. Define the Problem/Opportunity Slide 7 An Approach to Identifying Selection Criteria Develop list of candidate criteria Relevant cost issues Benefits identified in Step 5 Negative impacts of the alternative COAs Guidance provided by the leader Objectives specified by HQDA or other headquarters (see next slide) Pare the list down to the handful of most meaningful factors that should be taken into account in selecting a COA. 7 UNCLASSIFIED CBA Training Slides The person best qualified to identify selection criteria is the process owner or subject matter expert Slide 8 Possible Selection Criteria: Non-Financial Number of items produced Accuracy rate Time to delivery or fielding Interoperability with current systems Maintainability Political goodwill Combat effectiveness Criteria imposed by higher headquarters. E.g., in a recent POM build, HQDA directed that all issues be evaluated for their impact on ARFORGEN. Define how each criterion is measured and by whom. Make sure that the entity providing the measurement is credible. 8 UNCLASSIFIED CBA Training Slides Slide 9 Possible Selection Criteria: Financial Total Lifecycle Cost: Compares the total cost of two or more COAs over a relevant time period. Use of Net Present Value might be appropriate in situations involving major investments Benefit-Cost Ratio: Compares the present value of total benefits with the present value of total costs. Break-Even Point (Payback Period): The point in time at which the cumulative cost reduction generated by a COA equals its one-time investment or implementation cost. i.e., it is the point in time at which the COA has paid for itself. Reminder: Financial criteria must be evaluated in constant dollars. 9 UNCLASSIFIED CBA Training Slides Slide 10 10 Step 6 Define Alternative Selection Criteria Guidelines for Creating Selection Criteria These are the standards upon which the decision will be based Must be able to identify the extent to which each COA satisfies the Selection Criteria CBA team must be sure selection criteria represent the problem, and not the interests of the individual, CBA team or the decision maker Case Study: Choosing An Item From A Lunch Menu Slide 11 11 Case Study: Choosing An Item From A Lunch Menu Step 6 Define Alternative Selection Criteria CriteriaDescription 1 2 3 4 Step 6 Define Alternative Selection Criteria Slide 12 12 Case Study: Choosing An Item From A Lunch Menu Step 6 Define Alternative Selection Criteria CriteriaDescription 1Hunger Satisfaction 2Cost 3Nutritional Value 4Taste Step 6 Define Alternative Selection Criteria Slide 13 Step 7: Comparison of Alternatives 7a.Compare COAs using alternative selection criteria to identify the preferred COA. 7b.If there is a bill associated with the recommended COA, identify the billpayer. 7c.Identify the positive and negative impacts of the second- and third-order effects. What must be done to manage the negative impacts? 7d.Determine the robustness of the conclusions. If anything changes assumptions, costs, benefits, etc.. would the recommendation change? 7e. Identify the high-risk aspects of the recommended COA and define appropriate risk mitigation measures. 13 CBA Training Slides 8. Report Results and Recommendations 7. Compare Alternatives 6. Define Alternative Selection Criteria 5. Identify Quantifiable and Non- Quantifiable Benefits 4. Develop Cost Estimate for each Alternative 3. Define Alternatives 2. Define the Scope; Formulate Facts and Assumptions 1. Define the Problem/Opportunity Slide 14 Step 7a: Compare COAs Using Alternative Selection Criteria The essence of the CBA process is in comparing at least two courses of action in order to identify the preferred alternative. As a general rule, the preferred alternative is the alternative that provides the greatest amount of benefit in relation to its cost. 14 UNCLASSIFIED CBA Training Slides Slide 15 Aid for Completing Step 7a 15 UNCLASSIFIED CBA Training Slides CostsBenefitsSelection Criteria Equal Unequal Alternative that provides greatest benefits for given cost EqualSubjective reasoning and a fortiori analysis Unequal Alternatives ranked in order (based on benefit/cost ratio, net present value, or other relevant criterion) EqualLeast costly alternative Slide 16 Step 7b: Billpayers Step 7c: 2nd- and 3rd-Order Effects 7b. Billpayers are the funding sources that have been identified to cover the cost of the recommended COA. In most cases, the individual or team developing the CBA wont have the authority to identify billpayers. This requires collaboration with the organizations resource manager and prioritized. Lesson learned: Savings can be used as a billpayer, but cost avoidances cannot. Savings: A cost reduction that enables a manager to move funds from one function to another Cost avoidance: A cost reduction that does not enable a manager to move funds. Cost avoidance cannot be used as a billpayer. 7c.Second- and third-order effects are the ripple effect of the recommended COA: The recommended COA will solve our problem, but it will also create an additional factor we will have to deal with. 16 UNCLASSIFIED CBA Training Slides Slide 17 Questions for Steps 7a thru 7c Does the analysis clearly demonstrate how the recommended COA best satisfies the selection criteria? Is the recommended billpayer consistent with Army priorities? Do the benefits of the recommended COA justify the billpayer? Are second- and third-order effects identified, and are the negative impacts acceptable? 17 UNCLASSIFIED CBA Training Slides Slide 18 Steps 7d and 7e: Sensitivity Analysis and Risk Assessment 7d. Sensitivity analysis identifies the impact on the recommendation should any element of the analysis change. 7e. Risk assessment describes risks that can impact the achievement of stated benefits or the cost of solving the business problem. For each risk, assess the likelihood of occurrence and develop a mitigation strategy. 18 UNCLASSIFIED CBA Training Slides Slide 19 Questions for Steps 7d and 7e How sensitive is the recommendation to possible changes in costs, benefits, assumptions, etc..? If the recommendation is highly sensitive to changes, has more in-depth analysis been done? Which elements of the CBA require sensitivity analysis? Test only those elements for which there is considerable uncertainty or risk. Can include any element: Assumptions, constraints, costs, benefits, weighting of selection criteria, etc.. Address sensitivity from either or both perspectives: What is the impact of a change of such and such a magnitude? How large a change can occur before the recommendation changes? Have all reasonably likely risks and their impacts been identified? Are the recommended mitigation approaches adequate? Are they affordable? 19 UNCLASSIFIED CBA Training Slides Slide 20 20 Step 7 Comparison of Alternatives Case Study:Choosing An Item From A Lunch Menu Comparing Alternatives is a 5 step process in the Army CBA Guidelines for Comparing Alternatives The essence of the CBA process is in comparing at least two COAs in order to identify the preferred alternative The preferred alternative is the choice that provides the greatest amount of benefit in relation to its cost Do the weights and ranks represent the problem and not the interests of the individual, CBA team or decision maker? Does the decision make sense? Slide 21 21 Insert Excel Spreadsheet Decision Matrix Lunch Menu Case Step 7 Compare Alternatives Slide 22 Step 8: Report Results and Recommendations Preferred format for documenting the CBA is a narrative. This will probably be accompanied by a decision briefing. Results and recommendations summarize the analysis and make conclusive statements about the comparisons of alternatives. The results address how the alternatives were ranked using the criteria developed in Step 6. Following a clear statement of the conclusions, there should be a firm recommendation regarding the preferred alternative. All data and other information used in Steps 1-8 must be adequately documented. Supporting information should be identified so decision makers and analysts can understand how Steps 1-8 were developed. 22 Questions for the reviewer: Does the package contain all key elements, accompanied by supporting documentation? Does the recommended COA address the problem, and is it consistent with the assumptions and constraints? Does the analysis explain how the recommended COA is best at satisfying the selection criteria? CBA Training Slides 8. Report Results and Recommendations 7. Compare Alternatives 6. Define Alternative Selection Criteria 5. Identify Quantifiable and Non- Quantifiable Benefits 4. Develop Cost Estimate for each Alternative 3. Define Alternatives 2. Define the Scope; Formulate Facts and Assumptions 1. Define the Problem/Opportunity Slide 23 Step 8 Report Results and Recommendations The CBA Guide, available at the Cost & Performance Portal, includes a narrative report for the APS example. 23 UNCLASSIFIED CBA Training Slides Decision package must present a strong value proposition. That is, it must clearly show that the benefits of the recommended COA more than justify the costs and risks. Slide 24 24 Step 8 Report Results and Recommendations Case StudyChoosing An Item From A Lunch Menu Guidelines Report results in a narrative form. Executive summary includes, Problem statement, COAs, summary of necessary resources, Recommendation, and Cost summary CBA report includes the executive summary and all supporting documentation from steps 1-7. Slide 25 25 Step 8: Report Results and Recommendations Executive Summary Problem: D Brief description of methodology and number of COAs considered to determine the best menu choice. Existing or new funding? Recommendation: Cost to Implement: $ Other: Case Study: Choosing An Item From A Lunch Menu Slide 26 26 Step 8: Report Results and Recommendations Executive Summary Problem: Decide what to have for lunch today Five Courses of Action were developed to determine the best menu choice. All COAs utilize existing funding allocated to the action. Recommendation: Order the Greek Salad and Mint Tea Cost to Implement: $ 9.99 Sat Fat content: 14g Case Study: Choosing An Item From A Lunch Menu Slide 27 CBA Summary CBA has top-down support and is becoming embedded in Army decision-making processes. CBA helps leaders and managers make better resource-informed decisions and thus helps the Army make better use of resources that are becoming increasingly constrained. Robust analysis makes it easier to explain and defend Army resource requirements. Many of us will be active users of CBAs either helping to develop them or reviewing them for senior decision makers. Support is available tools, models, guides, dedicated mailbox, additional training. CBA is based on a sound, logical approach to problem solving, similar to MDMP. Its not rocket science. 27 DASA-CE is here to help! CBA Training Slides Slide 28 Learning Check What does it meant to define the scope of the CBA? Why is it important to formulate facts and assumptions? 28 Slide 29 RESOURCES 29 UNCLASSIFIED CBA Training Slides Slide 30 CBA Tools and Models Tool/ModelURLPurpose FORCES Cost Models https://www.osmisweb.army.mil/forces/login.aspx Suite of models that provides quick and reasonable unit cost estimates to a wide variety of users Army Military-Civilian Cost System (AMCOS) https://www.osmisweb.army.mil/amcos/app/home.aspx Personnel costs for military, civilian, contractor ASA(FM&C) Website http://asafm.army.mil/Documents/OfficeDocuments/CostEcono mics/rates/indices.xls Inflation indices Capabilities Knowledge Base http://asafm.army.mil/Documents/officedocuments/costecono mics/guidances/ckb-ui.pdf http://asafm.army.mil/offices/CE/Ckb.aspx?OfficeCode=1400 Research, development, and acquisition costing for major weapon/materiel systems Automated Cost Estimating Integrated Tools (ACEIT) http://www.aceit.com/Pages/Products/ProductPage.aspx?id=f6 38a6d8-60e9-414a-9970-7fed249b9d25 Automated Cost Data Base (ACDB) http://www.aceit.com/Pages/Products/ProductPage.aspx?id=a0 8e4c84-8c48-49c7-9f67-d1146b4784ac Operating & Support Management Information System (OSMIS) https://www.osmisweb.army.mil/osmisrdb/login.aspx Operating and support information for major weapon/materiel systems 30 Some of the websites listed here require user accounts. In most cases, anyone with a dot mil address can obtain an account. You are encouraged to scan these sites and request an account at any site that appears to be useful to you. This will save you time when you need to use the site to support a CBA or other projects. Slide 31 Principal Officials of HQDA 31 UNCLASSIFIED CBA Training Slides Secretary of the Army Chief of Staff of the Army Under Secretary of the Army Vice Chief of Staff of the Army ASA (AL&T) ASA (CW) ASA (FM&C) ASA (IE&E) ASA (M&RA) General Counsel Administrative Assistant to the SECARMY Deputy Under Secretary of the Army Chief Information Officer/G-6 The Inspector General The Auditor General Chief of Legislative Liaison Chief of Public Affairs Director, Small Business Programs Chief, National Guard Bureau Director of the Army Staff Sergeant Major of the Army DCS, G-1 DCS, G-2 DCS, G-3/5/7 DCS, G-4 DCS, G-8 Chief, Army Reserve Chief of Engineers The Surgeon General Assistant Chief of Staff for Installation Management The Judge Advocate General Chief of Chaplains Provost Marshal General Principal Officials of HQDA comprise the following individuals. These were the addressees on the USA/VCSA 30 December 2010 memo regarding cost-benefit analysis