Cost beniefit analysis training for decision makers and manager step1

AMERICA’S ARMY: THE STRENGTH OF THE NATION

Cost-Benefit Analysis (CBA)

Step 1: Problem/Opportunity and Objective

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Four-Day Training Briefing

Version 3.0 (Draft)
Last Updated: 10 November 2011

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Key Learning Objectives

CBA team members will:

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Use tools and techniques to develop statements describing:
Problem/Opportunity
Objectives

Background

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Step 1 Overview: Define Problem/Opportunity
and Objective

1. Define Problem/Opportunity and Objective

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The Background/Strategic Context

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The Problem/Opportunity Statement:

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2.
2. Define
Define Scope;
Scope; Formulate
Formulate Facts
Facts and
and Assumptions
Assumptions

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

Defines unfulfilled customers’/stakeholders’ needs
and expectations

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

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3.
3. Define
Define Alternatives
Alternatives

4.
4. Develop
Develop Cost
Cost Estimate
Estimate for

for each
each Alternative
Alternative

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The Objective:

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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?

5.
5. Identify
Identify Quantifiable
Quantifiable and
and
Non-Quantifiable Benefits
Benefits
1Non-Quantifiable

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Background:

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Discusses the circumstances that describe a need for the CBA

6.
6. Define
Define Alternative
Alternative
Selection Criteria
Criteria
Selection

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7.
7. Compare
Compare Alternatives
Alternatives

8.
8. Report
Report Results
Results and
and Recommendations
Recommendations

Key Questions:

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Does the Problem/Opportunity Statement provide a definition of the output performance issue/need?
Does the objective meet the leadership’s needs? What major stakeholders are likely to be impacted?

* Product(s) and/or service(s) are outputs with expected levels of performance (i.e., levels of efficiency and effectiveness) from a customer/stakeholder.
When customer/stakeholder expectations are not met, then there is an issue/problem requiring an alternative/solution.

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Background/Strategic Context

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“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

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addressed in the Cost Benefit Analysis” (CBA Guide, “Step 1” )

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Background and Strategic Context

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The problem/opportunity statement and objective should be accompanied by additional background information
to help the reader understand various aspects of the problem

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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

Background information should be substantial enough for all stakeholders to understand and support the
Problem/Opportunity Statement.

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–
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Background and the Status Quo

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If the status quo isn’t considered a valid solution, the background information should explain why. Guideline:
The status quo might not be a valid option if the required performance is not being achieved. For example:

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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.

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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

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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.

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case, the implicit decision has already been made to select a COA beyond the status quo.

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Problem/Opportunity Statements

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“A problem statement clearly defines the problem, mission need, and required capability. When developing a
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”,

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)

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Problem/Opportunity Statement Key Questions

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

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WHO

WHAT

WHEN/HOW/
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WHERE

EXTENT

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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)?

The Problem/Opportunity Statement should include this information.
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Determining Unfulfilled needs

Observations

Problem/Opportunity

Quality of Service:
I am always transferred to three or more different people
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assistant to customer

I’m getting my bill
at different times
of the month

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Sorting of incoming calls, assignment of the correct

It takes too long to process the application

Delivery of Service: Lack of consistent standard for delivery
date

Efficiency of Process:
Loan Cycle Time

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Problem stated as predetermined solution instead of as problem, as in the form, “We need
more money.”
Problem does not reflect the stakeholder concerns

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Problem is based on anecdotal information

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•

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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

Determine the correct problem statement.

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unavailable for use.

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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

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unavailable for use.

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

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determine the best way to store HMMWVs.

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Problem/Opportunity Statement Exercises

2)

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

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major supply route. Determine the problem statement and objective.

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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.

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

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

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Validate the CBA Problem/Opportunity

Defining the problem/opportunity is the first step in developing

players to ensure leadership agrees that the CBA addresses the
decision.

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

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Typical Stakeholders by CBA
CBA Title

Stakeholders

“Detrick Earth Station Direct Communications Link In-sourcing Initiative”

Dept. of State, White House Communications Agency, OSD, U.S. Northern

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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

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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)

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Objective Statement

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The objective statement describes the role of the CBA: what is the decision to be made, and how does the CBA

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

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Objective Statement: Examples

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“To inform Congressional decision on funding for winter storage of HMMWVs at Fort Benning.”
“To inform senior leader decision on the allocation of DAC, contractor, and military labor to perform the physical

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security function at Camp Victory.”

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Review Exercise: Henry Ford

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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

problem/opportunity statement and objective.

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process, with the final goal of arriving at a model for mass production and sale. Determine the correct

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Review Exercise: Henry Ford

•

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

UNCLASSIFIED

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

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

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