CBA Step 0

Report
AMERICA’S ARMY: THE STRENGTH OF THE NATION
CBA Four-Day TRAINING SLIDES
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Cost-Benefit Analysis (CBA)
Four-Day Training Briefing
Day 1
CBA Introduction and Overview
25 June 2012
Visit our CBA Website for more information regarding locations,
signing up, upcoming training sessions, and more
https://cpp.army.mil
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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
resource-constrained environment.
Mr. Stephen G. Barth
Deputy Assistant Secretary of the Army
(Cost & Economics)
AUSA National Meeting
October 2010
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Class Participation Guidelines
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Participants are expected to:
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Attend all four days of training
Be punctual for each session
Participate in discussions
Relate his or her own experiences
Ask questions
Listen to others
Avoid disrupting the class (i.e., side conversations)
Refrain from using wireless devices during class:
– Turn cell phones to either “off,” “silent,” or “vibrate”
– Unless an emergency, do not use cell phones
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Please, wait until the break
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Evaluation
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Each student will be assigned a final grade based
on:
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Attendance
Participation in mini-case exercises
Performance on CBA Capstone Case Study
Performance on final exam: writing a 2-hour CBA*
* Individuals with an average grade (attendance, mini-case
exercises, CBA Capstone Case Study) in the top 25% of
the class will be waived from the final exam and may
leave a day early.
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Final Exam and Grading Procedures
• Given a case study, individually perform and
write a CBA (2 hours).
• The final product will be evaluated one-on-one
by an instructor, and assigned a grade of A (“We
think you’ve got it”), B (“Pass, but study more”),
or C (“Not yet mastered CBA methodology”).
• Grade will determine access to class materials
on AKO.
• Not grading for grading’s sake, but a chance for
free one-on-one hands-on evaluation.
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Four-Day CBA Training Objectives
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Objectives:
• Provide an overview of the Army’s CBA policies,
regulations, methodology, and roles
• Discuss CBA workflow automation tools
• Offer additional tools to develop quality CBAs, such as:
– Analytical and graphical tools and techniques
– Cost analysis methodologies, databases, and models
– Financial and operational benefits analyses
• Review case studies and conduct exercises to illustrate
the application of these tools and methodology
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Purpose of the Class
• The aim of the class is NOT to give an
introduction to Cost-Benefit Analysis. A fourhour class exists for that purpose, as well as a
CBA Guide.
• The purpose of this course is to provide rigorous,
analytical instruction, opportunities for handson application in performing Cost-Benefit
Analyses, and one-on-one evaluation of work
produced.
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Four-Day CBA Training Schedule
Monday
UNCLASSIFIED
CBA Introduction and
Overview
Step 1:
Problem/Opportunity
and Objective
Step 2: Define CBA
Boundaries and
Parameters
Tuesday
Step 3: Define Alternatives
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Capstone Groups
Assigned
Step 6: Alternative
Selection Criteria
Step 4: Develop Cost
Estimates for Each
Alternative
Step 7: Compare
Alternatives
Mini-case # 4
Step 8: Report Results and
Recommendations
Step 5: Benefits
Mini-case #5, 6
Mini-case #1, 2, 3
Wednesday
Thursday
Capstone Case Study
Presentation and Review
Mini-case Exercises: #7, 8,
9, 10
Capstone Case Study
Groups Meet
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Day 1 Agenda
1200 – 1330: “CBA Introduction and Overview”
1340 – 1425: “Step 1: Problem/Opportunity and Objective”
1435 – 1520: “Step 2: Define CBA Boundaries and Parameters”
1530 – 1700: Mini-case exercises #1, 2, 3
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Key Learning Objectives
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The goal is to understand:
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What a CBA is
Guidance from senior leaders
Value of a CBA
Responsibilities of key players
Role of CBA in HQDA-level decision-making process
Process of CBA (high-level perspective)
Structure of a CBA
Pre-CBA Considerations
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A Note About Perspective
Although this course draws largely on
policies and activities at Headquarters,
Department of the Army, the content
and guidance are readily transferrable
to subordinate command and
installation level.
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POLICY GUIDANCE
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CBA Policies: OSD and the Army
Department of Army Directive
(Jan 07, 2011)
(Dec 30, 2009)
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The Secretary of Defense Directive
(Dec 27, 2010)
(Aug 16, 2010)
• “every new proposal
or initiative will come
with a cost estimate”
• “effective 1 Feb
2011, calculate costs
associated with
[studies & events]”
• “Require a cost estimate
for all program and policy
proposals”
• “use Cost-Benefit
Analysis (CBA) or
similar analytical
approaches/tools to
support resourceinformed decision
making”
• “each unfunded
requirement and new or
expanded program…be
accompanied by a
thorough cost-benefit
analysis”
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Impact of the Army Directive
• USA/VCSA memo was sent to
HQDA principal officials (see
back-up section for complete list
of addressees)
• As expected, the requirement is
“trickling down.”
– HQDA officials are requesting
CBAs from the field
– Subordinate commands are
requiring CBAs internally
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Army Leadership Expectations
Leadership Expectations:
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• Ensure the CBA results and efficiencies comply with Department of
Defense, Department of the Army, and congressional directives
• Allocate limited funding to achieve Army’s strategic priorities
efficiently
• Collaborate with stakeholders to develop effective and efficient
solutions
• Use CBA to:
– Make resource-informed decisions
– Deliver strong value proposition for the Army
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CBA DEFINITION
AND DESCRIPTION
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What is a CBA?
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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.
• In English:
1.
2.
3.
4.
Define a problem or opportunity
Identify alternatives
Determine their costs and benefits
Evaluate and select the best alternative
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CBA and the “Cost Culture”
CBA is part of a high-priority initiative to inculcate
a cost culture throughout the Army.
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• In any organization, “culture” is the beliefs and principles that guide the
behavior of the people in that organization.
– For example: The Army’s military culture is based on mission accomplishment, selfless
service, valor, and dedication. These concepts establish the foundation for how Soldiers and
Civilians go about their duties.
• In a cost culture:
– Cost is an integral part of every decision
– Soldiers and Civilians strive to find better and cost effective ways to operate the Army
enterprise
– Leaders at all levels engage in cost control and management activities, which are supported
by talented cost staffs
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VALUE OF CBA
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Why Do We Need CBAs?
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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:
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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
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REQUIREMENT FOR HQDALEVEL REVIEW
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CBAs Requiring HQDA Review
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UNCLASSIFIED
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Unfunded requirements, new program proposals, or expansions
being presented to the Senior Leaders of the Department of the
Army.
Issues presented to HQDA forums/processes:
POM/BES
Army Campaign Plan (ACP)
Army Requirements and Resourcing
Board (AR2B)
Force Design Update (FDU)
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Army Requirements Oversight
Council (AROC)
Training Resources Arbitration Panel
(TRAP)
… and more to follow
Issues that are important to the Army leadership, OSD, or
Congress
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CBARB
• The Cost-Benefit Analysis Review Board, or
CBARB, reviews each CBA submitted to HQDA
and makes a recommendation to the Deputy
Assistant Secretary of the Army (Cost and
Economics) as to whether the CBA is suitable to
support decision making.
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CBA-RB Role for CBAs Submitted to HQDA
CBA is submitted
UNCLASSIFIED
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CBA-RB reviews CBA:
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Cost estimate
Analytical rigor
Assumptions
Methodology and logic
DASA-CE decision, based on CBARB
recommendation:
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CBA Four-Day TRAINING SLIDES
CBA-RB reviews CBA
and makes
recommendation
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Is the CBA suitable or adequate to support
decision making?
DASA-CE approval is not approval of the
recommendation in the CBA
DASA-CE approves
CBA
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Decision Maker uses
CBA to make
resource-informed
decision
CBA-RB members:
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Board chair - Division Chief
Standing members:
 Army Budget Office (ABO)
 PAED
 G-3/5/7
Other members, as needed based on the subject
matter:
 Appropriate DASA(CE) divisions
 PEG representatives (as determined by
PAED)
 ABO appropriation sponsors
 HQDA functional proponents
 Manpower specialist from G-1
 Other functional proponent(s)
Commands and installations are encouraged to establish similar
teams to review and validate CBAs
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Questions for Reviewers
CBARB will determine whether the CBA is technically and functionally sound
Problem Statement, Assumptions, and Constraints
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Is the Problem Statement clear, and does it accurately identify the issue?
Are the assumptions clearly stated and realistic?
Are all relevant constraints identified?
Is the Problem Statement, assumptions, or constraints structured in a manner that is clearly intended to
favor one alternative?
Alternatives Development
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Is each of the alternatives feasible?
Are the alternatives distinctly different?
Are there obvious alternative that are not presented?
Does the CBA adequately identify (with supporting
documentation) the costs and benefits of each alternative?
Accuracy
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Is the CBA technically correct
(math, formulas, models, data
sources, etc.)?
Is the CBA functionally correct
(facts, not opinions)?
Analysis and Conclusions
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Are the decision criteria clearly identified?
Does the CBA use appropriate analytical techniques for the situation?
Is the recommended alternative compatible with the assumptions and constraints?
Does the analysis clearly explain how the recommended alterative is better than the others at satisfying
the decision criteria?
Does the recommended alternative satisfy the Problem Statement?
Have the risks been adequately expressed in the analysis and recommendation?
Does the decision briefing (or other final product) support the recommended alternative?
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METHODOLOGY OVERVIEW
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Surprisingly Simple
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CBA is easy to do!
It’s not rocket science.
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Eight-Step Methodology
1. Define Problem/Opportunity and Objective
2. Define CBA Boundaries and Parameters
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
CBA Four-Day TRAINING SLIDES
5. Identify Quantifiable and Non-Quantifiable Benefits
6. Define Alternative Selection Criteria
7. Compare Alternatives
8. Report Results and Recommendations
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UNCLASSIFIED
Cost Benefit Analysis and the MDMP
CBA Methodology
Military Decision-Making
Process (MDMP) *
1. Define Problem/Opportunity and Objective
Receive Mission
2. Define Scope; Formulate Facts and
Assumptions
Analyze Restated Mission (includes
assumptions and constraints)
3. Define Alternatives
Develop Alternatives
4. Develop Cost Estimate for each Alternative
CBA Four-Day TRAINING SLIDES
Analyze Alternatives
5. Identify Quantifiable and Non-Quantifiable
Benefits
Compare Alternatives
6. Define Alternative
Selection Criteria
Approve Alternatives
7. Compare Alternatives
8. Report Results and Recommendations
Issue Implementing Orders
* As prescribed in FM 5-0.
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CBA is Not a Linear Process
Objective
Recommendation
Assumptions
Sensitivity Analysis
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Alternatives
Compare
Alternatives
Selection
Criteria


Benefits
Estimate
Cost
Estimates
At any step in the process, the team’s findings and analysis might make
it necessary to revisit previous steps.
Significant findings might require asking the decision maker for revised
guidance.
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Step 1: Define the Problem/Opportunity
and Objective
1. Define the Problem/Opportunity and
Objective
2. Define CBA Boundaries and Parameters
Before beginning, determine
whether the proposal is realistic
and will be seriously considered.
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
CBA Four-Day TRAINING SLIDES
6. Define Alternative
Selection Criteria
7. Compare Alternatives
8. Report Results and Recommendations
• The Problem Statement clearly defines the
problem/opportunity that:
– Requires a solution
– Describes what the effort will accomplish
• The objective of the analysis:
– Describes the role of the CBA: what is the decision to
be made, and how does the CBA inform and
support it.
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Step 2: Define CBA Boundaries and Parameters
1. Define the Problem/Opportunity and
Objective
2. Define CBA Boundaries and Parameters
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
CBA Four-Day TRAINING SLIDES
6. Define Alternative
Selection Criteria
7. Compare Alternatives
The Boundaries and Parameters of a CBA are the
specifications that make an analysis feasible and
practicable. They are expressed by Scope, Facts, and
Assumptions.
• Scope: Defines the range of coverage encompassed by
an initiative or proposal along specific dimensions like
time, location, and organization.
• Fact: A verifiable statement that is real and something
that has happened or is happening.
• Assumption: A condition or situation over which we
have no control but is essential to the success of our
proposed solution.
8. Report Results and Recommendations
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Step 3: Define Alternatives
1. Define the Problem/Opportunity and
Objective
2.Define CBA Boundaries and Parameters
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
• Alternatives:
– Potential solutions to the Problem
Statement, given Scope, Facts, Assumptions,
and Constraints.
– They must include the status quo or current
state, if applicable.
5. Identify Quantifiable and
Non- Quantifiable Benefits
CBA Four-Day TRAINING SLIDES
6. Define Alternative
Selection Criteria
7. Compare Alternatives
8. Report Results and Recommendations
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Step 4: Develop Cost Estimate for Each Alternative
1. Define the Problem/Opportunity and
Objective
Cost Estimates:
2. Define the Scope; Formulate Facts and
Assumptions
• Capture the total cost of each alternative over
the appropriate period of analysis.
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
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6. Define Alternative
Selection Criteria
Types of Cost Estimates:
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Historical
Parametric
Analogy
Engineering
7. Compare Alternatives
8. Report Results and Recommendations
Document the cost estimate with data sources,
computations, rationale, etc. as this is essential
to the review/validation process.
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Step 5: Identify Quantifiable and
Non-Quantifiable Benefits
1. Define the Problem/Opportunity and
Objective
2.Define CBA Boundaries and Parameters
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
CBA Four-Day TRAINING SLIDES
6. Define Alternative
Selection Criteria
7. Compare Alternatives
• Benefits: “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 guide, “Step 5”)
8. Report Results and Recommendations
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Step 6: Define Alternative Selection Criteria
1. Define the Problem/Opportunity and
Objective
2. Define CBA Boundaries and Parameters
UNCLASSIFIED
3. Define Alternatives
• The standards upon which the decision will be
based
– Criteria must be consistent with the Problem Statement
and the benefits
4. Develop Cost Estimate for each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
6. Define Alternative
Selection Criteria
CBA Four-Day TRAINING SLIDES
Alternative Selection Criteria:
CBAs must:
• Identify the recommended decision criteria
• Elucidate how much each alternative satisfies
the criteria
7. Compare Alternatives
8. Report Results and Recommendations
Leadership Engagement:
The Lead Analyst should work with the Functional Manager to ensure they agree on the selection
criteria, particularly if criteria will be weighted in the evaluation phase
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Step 7: Compare Alternatives
1. Define the Problem/Opportunity and
Objective
2. Define CBA Boundaries and Parameters
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
CBA Four-Day TRAINING SLIDES
6. Define Alternative
Selection Criteria
7. Compare Alternatives
8. Report Results and Recommendations
Alternative Comparison: Compare alternatives using
the selection criteria to identify the preferred
alternative.
Billpayer Analysis: Identify the billpayer if there is a
bill associated with the recommended alternative.
Effects Analysis: Identify the positive and negative
impacts of the 2nd and 3rd order effects. What must
be done to manage the negative impacts?
Sensitivity Analysis: Determine the robustness of the
conclusions. If anything changes (i.e., assumptions,
costs, benefits) would the recommendation change?
Risk Analysis: Identify the high-risk aspects of the
recommended alternative and define appropriate
risk mitigation measures.
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Step 8: Report Results and Recommendations
1. Define the Problem/Opportunity and
Objective
2. Define CBA Boundaries and Parameters
Results and Recommendations:
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•
UNCLASSIFIED
3. Define Alternatives
4. Develop Cost Estimate for each Alternative
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Summarize the analysis
Make conclusive statements about each of the
alternatives and how they were evaluated
Present specific recommended solution
Include documentation used in all steps
5. Identify Quantifiable and
Non- Quantifiable Benefits
CBA Four-Day TRAINING SLIDES
6. Define Alternative
Selection Criteria
7. Compare Alternatives
8. Report Results and Recommendations
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Packaging the Complete Product
Preferred document format is a narrative.
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• Narrative provides all the words that would accompany a briefing and
therefore is more clearly understood
• Cost estimates are easier to document by including spreadsheets
Key elements for both formats:
• Clarity:
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Does not contain vague, unsubstantiated statements/data
Presented in suitable terms for the intended recipient
• Analytical rigor:
•
Steps are supported by and consistent with the preceding steps
• Completeness:
•
Key deliverables are addressed at each step of the methodology
CBA examples of narrative and briefing forms are
in “Appendix E,” CBA Guide, https://cpp.army.mil
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CBA is Not Rocket Science
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At the conclusion of this class, if you
continue to follow the methodology we
teach, you’ll find that a CBA is
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IMPORTANT: CBA Guide
• Establishes the standard procedure for
preparation of CBAs, located at
https://cpp.army.mil under “Documents” tab.
• All preparers should refer to and follow the
procedures set forth in the CBA guide. These are
the standards against which all CBAs will be
evaluated.
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CBA and Army Decision Making
CBAs:
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• Are becoming embedded in the Army’s decision-making
processes
• Are based on a sound, logical approach to problem solving
Value of CBAs:
• Supplement (but not replace) professional experience, subject
matter expertise, and military judgment
• Ensure the efficient allocation of the Army’s limited funds by
enabling leaders to make better cost-informed decisions
42
Expectations and Tips
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What senior leaders expect:
• Support of the Army’s strategic priorities, directives,
and regulations
• Analytical rigor and innovative thinking
• Collaboration with stakeholders to develop effective
and efficient solutions
• Feasible alternatives
To plan for success in your CBA role:
• Form a capable CBA team with clear roles and responsibilities
• Understand the CBA eight-step methodology and the key
deliverables
• Establish a timeline to monitor progress
• Leverage available support (identified in the “Resources” section of
this briefing)
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RESOURCES
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Available Tools and Models for Cost Data
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
UNCLASSIFIED
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/
guidances/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
FORCES Cost Models
CBA Four-Day TRAINING SLIDES
URL
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
45
References and Assistance
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• Cost-Benefit Analysis Portal
– Go to the Cost & Performance Portal (CPP) at https://cpp.army.mil
– If you already have a CPP account, click Enter Site. If not, click Request a New
Account and follow the instructions to register your Common Access Card (CAC).
– If you get the message, There is a problem with this website’s security certificate,
click on Continue to this Website.
– On the next screen, in the upper-left corner
• For the CBA Guide, examples, and related tools, click on Cost Benefit Analysis
(CBA) Portal.
• To submit or track the status of CBAs, click on CBA Workflow Tool.
• Dedicated mailbox provides authoritative answers to all questions:
– NIPR: [email protected]
– SIPR: [email protected]
46
Before Beginning a CBA
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• Pre-CBA Considerations:
– Ensure that a CBA is needed
– Select a qualified CBA team
– Ensure that the relevant decision-making forum is aware of
the CBA review, so that the work of the CBA and review is a
“value-added” process.
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Pre-CBA Considerations - Need for CBA
• A CBA is appropriate whenever
decision-makers can be aided by an
objective and resource-informed
analysis of problems and alternatives.
• When a CBA is required: VCS/USA
Memo, 30 Dec 2009—“…each
unfunded requirement and new or
expanded program proposal
submitted to the Secretary of the
Army, Chief of Staff, Army, Under
Secretary of the Army or Vice Chief of
Staff, Army, [must] be accompanied
by a thorough cost-benefit analysis
(CBA).”
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Pre-CBA Considerations - CBA Team Identification
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Validate the
need for a CBA
CBA Team
• CBA is a team effort, not an individual effort
• CBA Lead Analyst: Integrates efforts of CBA team
• CBA Functional Proponents and Representatives: Provide data, assist in COA
development, determine cost elements, validate/provide assumptions and
constraints
• CBA team members should:
– Attend CBA training or orientation
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