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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

https://cpp.army.mil

AMERICA’S ARMY: THE STRENGTH OF THE NATION

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

Step 1: Problem/Opportunity and Objective

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Key Learning Objectives

CBA team members will:• Use tools and techniques to develop statements

describing:– Problem/Opportunity – Objectives– Background

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8. Report Results and Recommendations

7. Compare Alternatives

6. Define Alternative Selection Criteria

5. Identify Quantifiable and Non-Quantifiable Benefits

4. Develop Cost Estimate for each Alternative

3. Define Alternatives

2. Define Scope; Formulate Facts and Assumptions

1. Define Problem/Opportunity and Objective

• The Background/Strategic Context– Provides the contextual information needed to understand the

problem, need, or opportunity addressed in the CBA.• The Problem/Opportunity Statement:

– Defines unfulfilled customers’/stakeholders’ needs and expectations– Defines an opportunity to optimize/improve the performance of a

product and/or service for the end user

• The Objective:– 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?

• Background: – Discusses the circumstances that describe a need for the CBA

Step 1 Overview: Define Problem/Opportunity and Objective

Key Questions:– 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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• “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 addressed in the Cost Benefit Analysis” (CBA Guide, “Step 1” https://cpp.army.mil)

Background/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– 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.

Background and Strategic Context

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

– 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.

Background and the Status Quo

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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”, https://cpp.army.mil)

Problem/Opportunity Statements

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Problem/Opportunity Statement Key Questions

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

The Problem/Opportunity Statement should include this information.

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)?

WHO

WHAT

WHEN/HOW/WHERE

EXTENT

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Determining Unfulfilled needs

Observations Problem/Opportunity

I am always transferred to three or more different people

Quality of Service: Sorting of incoming calls, assignment of the correct

assistant to customer

I’m getting my billat different times

of the month

Delivery of Service: Lack of consistent standard for delivery

date

It takes too long to process the application

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• Problem is based on anecdotal information

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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 unavailable for use. Determine the correct problem statement.

Problem/Opportunity Statement Exercises

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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 unavailable for use.

Solution: Because the current storage facility at Ft. Hampton will soon be unavailable for use, the Army must determine the best way to store HMMWVs.

Problem/Opportunity Statement Exercises

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2) The Commander, USCENTCOM has asked for a comparison of three alternatives for clearance of IEDs along a major supply route. Determine the problem statement and objective.

Problem/Opportunity Statement Exercises

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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.

Solution: Problem statement—IEDs placed along major roads threaten the lives of coalition troops and the movement of critical supplies. Objective—to inform Commander, USCENTCOM decision on alternatives for IED clearance.

Problem/Opportunity Statement Exercises

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Defining the problem/opportunity is the first step in developing a CBA;

however, it is important to collaborate with CBA key players to ensure leadership agrees that the

CBA addresses the decision.

Validate the CBA Problem/Opportunity

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Typical Stakeholders by CBA

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CBA Title Stakeholders

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

Dept. of State, White House Communications Agency, OSD, U.S. Northern 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 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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• The objective statement 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?

Objective Statement

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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 security function at Camp Victory.”

Objective Statement: Examples

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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. Determine the correct problem/opportunity statement and objective.

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

Review Exercise: Henry Ford

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