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Version 3.0 (Draft)Last Updated: 10 November 2011

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AMERICA’S ARMY: THE STRENGTH OF THE NATION

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

Step 5: Benefits

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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

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8. Report Results and Recommendations

7. Compare Alternatives

6. Define Alternative Selection Criteria

5. Identify Benefits

4. Develop Cost Estimate for Each Alternative

3. Define Alternatives

2. Define Scope; Formulate Facts and Assumptions

1. Define Problem/Opportunity and Objective

Step 5: Benefits

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• “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”)

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Definition: Benefit

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• 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.

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

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Primary Benefits

Problem Statement COA description Primary benefit of COA

Product manufacturing time exceeds the limit specified by mission requirement by 15%

Expand manufacturing facility and personnel by 20%

Product manufacturing time expected to be reduced to 10% under mission requirement limit

Current residential facilities insufficient to accommodate influx of 400 new soldiers due to upcoming BRAC

Move 400 civilians currently living in temporary on-base quarters to off-base housing.

COA will vacate living quarters for the 400 new soldiers expected on base.

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

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

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Secondary Benefits

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Identifying Benefits

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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 appraisals.

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

2. If a COA appears to deliver relevant benefits that are not encompassed by the problem statement, perhaps analysis should be modified.

3. Are the benefits objective, and can they be quantified?

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• Quantifiable vs. difficult to quantify– Quantifiable benefits can be measured

• Objective vs. subjective– 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

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Types of Benefits

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

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Types of Benefits (cont’d)

Quantifiable Difficult to Quantify

Subjective Customer satisfaction MoralityFlexibilityAdherence to policyLife, safety, health

Objective Order-ship timeCycle timeError rateVehicle speedWeapon survivability

N/A – All objective benefits can be measured, usually with a number or sometimes with a yes/no indicator.

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• Benefits should be– Relevant– Reasonable– Specific– Logical– Clear

• Try to identify benefits driving the decision

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Desired Characteristics of Benefits

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

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Well-Crafted Benefits

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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 expected training/orientation time by 2 hours per user.

Benefits Best Practices

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

system.”

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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 student and help them achieve the desired degree of proficiency.

Benefits Best Practices (Cont’d)

Problem Statement: “We need to achieve satisfactory levels of proficiency in job

related tasks.”

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Benefits Best Practices (Cont’d)

Benefits should be RELEVANT.• Bad:

– COA1 provides clear communications between infantry and armor units.

• Good:– 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.

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

indirect fire support to assist in ground operations.”

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• 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

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Summary

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Exercises

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

1. Build a permanent steel bridge across the Amazon.2. Build a collapsible aluminum bridge across the Amazon.3. Ford the river.4. Use makeshift rafts to float supplies across.5. Turn around and head back to Sao Paulo, and charter a plane

across the Amazon.

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 mission in Brazil.”

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

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Review Exercise: Henry Ford

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• 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.

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Review Exercise: Henry Ford

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• 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 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. [Note: Fictional]

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

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

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