Cost beniefit analysis training for decision makers and manager step3

AMERICA’S ARMY: THE STRENGTH OF THE NATION

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

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Step 3: Define Alternatives

Version 3.0 (Draft)
Last Updated: 10 November 2011

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Four-Day CBA Training Schedule
Monday

Tuesday

Wednesday

CBA Introduction and Overview

Step 3: Define Alternatives

Step 6: Alternative Selection Criteria

Step 1: Problem/Opportunity and

Step 4: Develop Cost Estimates for Each

Step 7: Compare Alternatives

Objective

Alternative

Thursday

Capstone Case Study Presentation and Review

Step 8: Report Results and Recommendations
Mini-case # 4

Parameters
Step 5: Benefits
Mini-case #1, 2, 3

Mini-case Exercises: #7, 8
Capstone Case Study Groups Meet

Mini-case #5, 6
Capstone Groups Assigned

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Step 2: Define CBA Boundaries and

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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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Step 3: Define Alternatives
Use problem solving techniques to identify innovative and robust alternatives.

1.
1. Define
Define Problem/Opportunity
Problem/Opportunity and
and Objectives
Objectives

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

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3. Define Alternatives

Alternatives:

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Potentially optimal solutions to the Problem Statement, given Scope,
Facts, Assumptions, and Constraints.
They should include the status quo or current state, if applicable.

4.
4. Develop
Develop Cost
Cost Estimate
Estimate for
for Each
Each Alternative
Alternative

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

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

Questions for the reviewer:
- Have all feasible alternatives been considered to include alternatives that represent creative thinking?

7.
7. Compare
Compare Alternatives
Alternatives

- 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?
- Do the alternatives span a reasonably wide range of potential solutions?

8.
8. Report
Report Results
Results and
and Recommendations
Recommendations
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Status Quo (“As-Is” state):

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

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The CBA must be forward-looking, not historical. Therefore, the status quo is not always static—it must account for scheduled

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changes that might occur within the timeframe of the analysis.

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Is the status quo a viable alternative?

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

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Yes: Status quo is viable
No: Status quo is not viable

For example:

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Problem: A storage depot is given a new task to store sensitive items that cannot be exposed to the weather
Fact: Existing storage facilities are concrete pads with overhead cover but no walls
Conclusion: Status quo cannot solve the problem and is therefore not viable

If the status quo is not viable:

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It should still be costed and mentioned in the CBA.
In the CBA, explain why the status quo was rejected

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Developing Alternative Courses of Action

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

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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

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optimal solutions should be included in the CBA.

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Developing Alternative Courses of Action

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

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Developing Alternative Courses of Action

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The set of COAs included in a CBA should

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be potentially optimal solutions to the problem

represent the potential range of solutions

COAs should not

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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.

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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:

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Including just Mercedes and Porsche as the two COAs under consideration would not cover the span of possible solutions. It can only be

representative of those solutions that are both expensive and reliable.

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Including a COA that purchases a used car with 300,000 miles would also be unreasonable—this is not likely to be a reliable car and clearly not

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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.

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a potentially optimal solution.

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Example: Finding Optimal Solutions

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

Afghanistan by a fleet of C-130 Hercules aircraft, each with a total maximum payload of 405,000
pounds.

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$11M and weighs 12,000 pounds. After procurement, all the HIMARS 2 will be transported to

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Example: Finding Optimal Solutions

How do you maximize the total number of HIMARS procured?

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

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

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

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Example: Finding Optimal Solutions

COA 2

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COA 3

COA 4

COA 1 (Status Quo)
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Example: Finding Optimal Solutions

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

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

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Suggested Methods for COA Development

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DOTMLPF: A methodology used by JCIDS to brainstorm possible solutions within the dimensions of Doctrine,

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Consult Stakeholders, team members, and subject matter experts.

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Mathematical analysis and/or optimization.

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Organization, Training, Materiel, Leadership, Personnel, and Facilities.

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Courses of Action

Common mistakes

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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

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Developing Alternatives: Example 1
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
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Since workload is increasing by a factor of three, the solution is to triple the office’s manpower.

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Innovative Problem Solving

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

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Consider wide range of solutions, such as:

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Increase manpower staffing

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Outsource part of the process

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Automate the preparation of forms

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

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

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Developing Alternatives: Example 2

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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:

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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.

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Developing Alternatives: Exercise

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

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(fictional) scenario.

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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

Courses of Action.

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process, with the final goal of arriving at a model for mass production and sale. Define possible alternative

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