Cost beniefit analysis training for decision makers and manager step5

AMERICA’S ARMY: THE STRENGTH OF THE NATION

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

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

Step 5: Benefits

Version 3.0 (Draft)
Last Updated: 10 November 2011

Visit our CBA Website for more information regarding locations, signing up, upcoming training sessions, and
more


1


Key Learning Objectives

Objectives:

•
•

Understand the nature of benefits
Understand the types of benefits

•

Quantitative vs. non-quantitative
Objective vs. subjective

Recognize what constitutes a well-crafted benefit

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

•
•

2


1.
1. Define
Define Problem/Opportunity
Problem/Opportunity and
and Objective
Objective

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

and Assumptions
Assumptions

UNCLASSIFIED

3.
3. Define
Define Alternatives
Alternatives

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

CBA 4-DAY TRAINING SLIDES

5.
5. Identify
Identify Benefits
Benefits

6.
6. Define
Define Alternative
Alternative

Selection
Selection Criteria
Criteria

7.
7. Compare
Compare Alternatives
Alternatives

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

3


Definition: Benefit

•

“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 4-DAY TRAINING SLIDES

UNCLASSIFIED

(CBA guide, “Step 5”)

4


Primary Benefits

•

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.

UNCLASSIFIED

•

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

Problem Statement

COA description

Primary benefit of COA

Product manufacturing time exceeds the limit

Expand manufacturing facility and personnel

Product manufacturing time expected to be

specified by mission requirement by 15%

by 20%

reduced to 10% under mission requirement

CBA 4-DAY TRAINING SLIDES

limit

Current residential facilities insufficient to

Move 400 civilians currently living in

COA will vacate living quarters for the 400 new

accommodate influx of 400 new soldiers due

temporary on-base quarters to off-base

soldiers expected on base.

to upcoming BRAC

housing.

5

Secondary Benefits

•

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

•

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

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

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

6


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

UNCLASSIFIED

appraisals.

–

2.

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

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

CBA 4-DAY TRAINING SLIDES

analysis should be modified.

3.

Are the benefits objective, and can they be quantified?

7

Types of Benefits

•

Quantifiable vs. difficult to quantify

–

UNCLASSIFIED

•

Objective vs. subjective

–
–

•

Quantifiable benefits can be measured

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

CBA 4-DAY TRAINING SLIDES

–

8


Types of Benefits (cont’d)

•

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

Quantifiable
Customer satisfaction

UNCLASSIFIED

Subjective

Difficult to Quantify
Morality
Flexibility
Adherence to policy
Life, safety, health

Objective

Order-ship time

N/A – All objective benefits can be

Cycle time

measured, usually with a number or

Error rate

sometimes with a yes/no indicator.

CBA 4-DAY TRAINING SLIDES

Vehicle speed
Weapon survivability

9


Desired Characteristics of Benefits

UNCLASSIFIED

•

Benefits should be

–
–
–
–
–

•

Relevant
Reasonable
Specific
Logical
Clear

Try to identify benefits driving the decision



Objective benefits facilitate the decision-making process,
because they help to remove opinions and emotion from

CBA 4-DAY TRAINING SLIDES

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.

10


CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

Well-Crafted Benefits

11


Benefits Best Practices

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

UNCLASSIFIED

Benefits should be CLEAR.

•

Bad:

–

•

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

Good:

–

The improved system in COA 1 has 20% fewer required user inputs, an easier to read interface, and reduces the

CBA 4-DAY TRAINING SLIDES

expected training/orientation time by 2 hours per user.

12


Benefits Best Practices (Cont’d)

Problem Statement: “We need to achieve satisfactory levels of proficiency
in job related tasks.”

UNCLASSIFIED

Benefits should be SPECIFIC.

•

Bad:

–

•

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

Good:

–

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

CBA 4-DAY TRAINING SLIDES

student and help them achieve the desired degree of proficiency.

13


Benefits Best Practices (Cont’d)

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

UNCLASSIFIED

provide indirect fire support to assist in ground operations.”

Benefits should be RELEVANT.

•

Bad:

–

•

Good:

–
CBA 4-DAY TRAINING SLIDES

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.

14


Summary

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

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

•
•
•
•

15


Exercises

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

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

mission in Brazil.”

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

1.
2.

3.
4.
5.

Build a permanent steel bridge across the Amazon.
Build a collapsible aluminum bridge across the Amazon.
Ford the river.
Use makeshift rafts to float supplies across.
Turn around and head back to Sao Paulo, and charter a plane across the Amazon.

16


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

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

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

17

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.

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

–
–
–

18


Mini-case Exercise #5
or “how many can I get for $1.2B?”

•

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

UNCLASSIFIED

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.

CBA 4-DAY TRAINING SLIDES

[Note: Fictional]

19


Mini-case Exercise #6
or “where do the lines cross?”

•

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

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.

CBA 4-DAY TRAINING SLIDES

UNCLASSIFIED

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

20