PDI CBA WORKSHOP UNCLASSIFIED AMERICA’S ARMY: THE STRENGTH OF THE NATION Cost Benefit Analysis (CBA) Training for Decision Makers and Managers FM LEVEL III 29 May 2015 Visit our CBA Website for more information regarding locations, signing up, upcoming training sessions, and more https://cpp.army.mil PDI CBA WORKSHOP UNCLASSIFIED Welcome • The Army's senior leaders are committed in making resource-informed decisions by means of CBAs • Army leaders have identified cost culture as one of the highest priorities in adapting to an increasingly resourceconstrained environment AUSA National Meeting October 2010 UNCLASSIFIED PDI CBA WORKSHOP Ar m A Cost Culture entails developing – through leadership, y education, discipline, and experience an Co understanding of the importance of: st – making cost-informed decisions Cu – making effective trade-off decisions to achieve lt the best possible use of limited resources ur – holding people accountable for understanding e and being able to explain the costs of their organizations, products, services, and customers – focusing on continuously improving the efficiency and effectiveness of operations • Culture: Common Beliefs and Behavior in an Organization UNCLASSIFIED PDI CBA WORKSHOP Co m pa Cost Benefit Analysis—Making the case for a project or proposal: Weighing the total expected costs against the total expected benefits over the near, far, and lifecycle timeframes from an Army enterprise perspective tiv BENEFITS COSTS e The total of quantifiable (e.g  Quantifiable costs cycle-time) and non Direct A quantifiable (e.g quality)  Indirect benefits na  Initial/Start up Financial benefits  Sustainment Return on Investments lys  Procurement Cost Avoidances is Break-even Pt  Non Quantifiable Costs  Life/Safety/Health A Non-Financial benefits Greater capability  Perception/Image Faster availability pp  Opportunity Better quality  Risk/Uncertainty Improved morale ro  Political Other? ac BENEFITS MUST BALANCE OR OUTWEIGH COSTS h Develop the Problem Statement; Define the Objective and the Scope  Formulate Assumptions; and Identify Constraints Document Current State (Status Quo)  Define Alternatives with Cost Estimates     Identify Quantifiable and Non- Quantifiable Benefits   Define Alternative Selection Criteria Compare Alternatives Report Results and Recommendations            Slide: Army’s Demand for CBA 1000 800 UNCLASSIFIED 600 400 200 Submitting Organizations Total CBAs Created 1200 278 20 33 57 361 453 528 640 715 775 825 963 992 883 924 20.00% 160 1.00% 16.00% AMC ARNG ASCC DRU/FOA FORSCOM HQDA TRADOC 24.00% CBAs by Decision Forum PDI CBA WORKSHOP 3.00% 4.00% 32.00% CBAs by DOTMLPF 30.55% 31.12% 5.00% 3.00% Concept Plan AROC Legislative Proposal FDU Other 3.95% 15.00% 5.00% 35.00% 1.00% 8.00% Doctrine Organization Training Materiel Leadership Personnel Facilities 36.00% 26.38% Training Objectives • Understand Army’s CBA methodology • Understand how to use CBA to improve decision making • Develop managerial guidelines to encourage good analysis • Explore development of policies and regulations • Illustrate the methodology PDI CBA WORKSHOP UNCLASSIFIED Objectives: PDI CBA WORKSHOP UNCLASSIFIED CBA METHODOLOGY What is a CBA? UNCLASSIFIED Cost-Benefit Analysis: • Is a structured methodology used to identify alternative solutions to a problem, determine the costs and benefits of each alternative, define the appropriate decision criteria, and select the best alternative • Produces a strong value proposition – a clear statement that the benefits outweigh the costs and risks PDI CBA WORKSHOP • In English: Define a problem or opportunity Identify alternatives Determine their costs and benefits Evaluate and select the best alternative Why Do We Need CBAs? PDI CBA WORKSHOP UNCLASSIFIED Purpose: • Supplement (but not replace) professional experience, subject matter expertise, and military judgment with rigorous analytical techniques • Make best possible use of constrained resources • When making resource decisions: – – – – – Ensure that all decisions are resource-informed Treat cost a consideration from the outset, not as an afterthought Understand how much benefit will be derived Identify billpayers Consider second- and third-order effects Surprisingly Simple Concept PDI CBA WORKSHOP UNCLASSIFIED CBA is easy to do! It’s not rocket science 10 PDI CBA WORKSHOP UNCLASSIFIED BACKUP 57 Cost- Investment $0 Cost - Recurring (FY 1-6) $40M $25M Base$648M Relocation $527M Decision is the potential realignment and relocation of a Army school with approximately 50 staff members and 2000 students/year PDI CBA WORKSHOP UNCLASSIFIED COA-1  Decision Matrix Benefit Criteria COA-2 COA-3 Rating or Ranking Weight COA-1 COA-2 COA-3 Cost 30% Political support 45% 25%  Score : 6.4 7.2 Quality of life/post support COA-1 highest benefit COA-2 best value COA-3 lowest cost Rating: (worst) to (best) PDI CBA WORKSHOP UNCLASSIFIED Considerations for Decision Maker Decision makers should ensure:  Analysis clearly demonstrates how the recommended COA best satisfies the selection criteria  Weightings for selection criteria are consistent with decision maker’s guidance  Second- and third-order effects are identified, and the negative impacts have been taken into account  Sensitivity analysis has been conducted to determine how sensitive the recommendation is to possible changes in costs, benefits, assumptions, etc  All reasonably likely risks and their impacts been identified, and the recommended mitigation approaches are adequate and affordable 59 • Define and Scope the Problem/Opportunity UNCLASSIFIED Formulate Assumptions and Identify Constraints Define Alternatives Develop Cost Estimate for Alternatives under Consideration Identify Quantifiable and Non-Quantifiable Benefits PDI CBA WORKSHOP Define Alternative Selection Criteria Compare Alternatives Report Results and Recommendations • St ep 6: Alternative selection criteria are the standards/bases on which the decision will be based Alt CBAs must contain documentation that identifies recommended decision criteria and the extent to er which each alternative satisfies each of the criteria.na tiv e Questions for the reviewer:  Are the selection criteria consistent with the Sel problem statement or objective?  Do the selection criteria incorporate appropriate ec guidance from higher headquarters? tio  Has consideration been given to a mix of cost and n non-cost criteria?  Are the selection criteria inappropriately skewed Cri to favor one course of action? ter ia 60 CBA Costing Process Review and Validation Preparation PDI CBA WORKSHOP UNCLASSIFIED Establish Ground Rules and Assumptions Identify Data Requirements and Sources Develop Work Breakdown Structure Obtain or Develop Detailed Process Map Prepare Back-Up Documentation Develop Developthe the Cost Cost Estimate Estimate Review for Accuracy and Reasonableness Conduct Sensitivity Analysis and Risk Assessment If you all this, you’ll have a good cost estimate 61 PDI CBA WORKSHOP UNCLASSIFIED • • C B DASA-CE published enablers in the CPP: – Cost Benefit Analysis Guide Book A – CBA Briefing Template – CBA Examples and Case Studies Tr – Question and Answer Mailbox: usarmy.pentagon.hqda-asa-fm.mbx.army-cost-benefit-analysis@mail.mil CBA Training: – Hour familiarization training ni – Day course – Day course for trainers offer by DASA(CE) n – Introduction in various other classes: FM Classes, CMCC, PCAM, ICAM, CMBC g 62 Resources • DASA-CE has put together the following set of enablers: • • • PDI CBA WORKSHOP UNCLASSIFIED – – – – Cost Benefit Analysis Guide Book CBA Briefing Template CBA Examples and Case Studies Question and Answer Mailbox All documents are posted in the Cost and Performance Portal: https://cpp.army.mil Question and Answer Mailbox (24-hour turn around) usarmy.pentagon.hqda-asa-fm.mbx.army-cost-benefit-analysis@mail.mil (link in cpp CBA Training: – Hour familiarization training – Day course – Introduction in various other classes: FM Classes, CMCC, PCAM, ICAM Assistance is available from DASA(CE) Cost Benefit Analysis Review Board (CBARB) Deputy Assistant Secretary of the Army Cost & Economics (DASA – CE) 63 63 UNCLASSIFIED Personnel Modeled costs AMCOS must be used for military and civilian personnel compensation and benefits A v Data Sources Facilities Equipment la bl Army Equipping e Unified Facilities Enterprise System Criteria T o FORCES ol Electronic Document Access s Form 1391 – MILCON construction costs Equipment costs by LIN PDI CBA WORKSHOP Facilities sustainment costs estimation OPTEMPO, equipment, force structure, transportation, CONOPS Services, leases, and equipment Contract data 64 Slide: 65 PDI CBA WORKSHOP UNCLASSIFIED A v la bl e T o ol s 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 to any site that you think will be useful to you This will save time when you need to use any sites to support a CBA or other projects Tool/Model URL PDI CBA WORKSHOP UNCLASSIFIED FORCES Cost Models Purpose 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 https://www.osmisweb.army.mil/amcos/app/home.aspx Personnel costs for military, civilian, and/or contractor ASA(FM&C) Website http://asafm.army.mil/Documents/OfficeDocuments/CostEconomics/ rates/indices.xls Inflation indices Capabilities Knowledge Base http://asafm.army.mil/Documents/officedocuments/costeconomics/g uidances/ckb-ui.pdf http://asafm.army.mil/offices/CE/Ckb.aspx?OfficeCode=1400 Research, development, and acquisition costing for major weapon/material systems https://www.osmisweb.army.mil/osmisrdb/login.aspx Operating and support information for major weapon/material systems Army Military-Civilian Cost System (AMCOS) Operating and Support Management Information System (OSMIS) Access links through the “Resources” tab in the CBA Portal at https://cpp.army.mil 66 PDI CBA WORKSHOP UNCLASSIFIED AMCOS AMCOS ApplicationsAMCOS lite 67 PDI CBA WORKSHOP UNCLASSIFIED Capabilities Knowledge Base 68 PDI CBA WORKSHOP UNCLASSIFIED Capabilities Knowledge Base 69 PDI CBA WORKSHOP UNCLASSIFIED OSMIS 70 PDI CBA WORKSHOP UNCLASSIFIED OSMIS 71 ... Funding and schedule decisions ts 16 UNCLASSIFIED PDI CBA WORKSHOP • Which decision is analysis supporting? • Addressing multiple decision points increases number of alternatives – decisions and. .. Cost & Benefits Benefits Should Outweigh Costs One of the best ways to elucidate the resource-informed decision to senior leadership is to include a Decision Matrix in the Decision Brief 33 Decision. .. come with a cost estimate” • “effective Feb 2011, calculate costs associated with [studies & events]” • “Require a cost estimate for all program and policy proposals” • “use Cost- Benefit Analysis