2012-MMT116

Cost Benefit Analysis Overview

Methods and Models I Track

MMT116_Presentation_CostBenefitAnalysis_Hamilton

Abstract:

There are many different requirements to do some type of cost and benefit tradeoff analysis as part of the acquisition process, IT investment decisions, performance based logistics decisions and budget change proposals. Most of them have nuance definition differences and are known by their acronyms as CBA, EA, BCA, AoA, COA and several other terms. Every one of those analysis requirements is aimed at demonstrating or helping others to decide on what is the most reasonable and cost effective decision that needs to be made. In spite of most of them having been mandated for years, teaching people how to write and brief effective analysis is hard to locate.
The academic and business (non-government) community has studied the process for years and has a number of robust training programs for people to attend. Those courses and training events, though, fall short of what is needed for a DoD analysis. They tend to focus on the economic calculations that drive the final decision process. Emphasis is on gathering dollar value benefits numbers and reducing the decision to a simple economic tradeoff. Their analysis often starts with a variation on the same question, “how do we make more money by.” DoD, however, is different. Initial guidance on what the question is, is often vague. Benefits are hard, if not impossible, to reduce to dollar values. Billion dollar decisions have to be reduced to an hour (or less) long briefing. The real training question for DoD is how do you train people to do the hard part of the analysis – defining the real problem, focusing on the germane assumptions, deciding how to set up decision criteria when money is not the only criteria, and presenting a decision product that explains it all?

This session will be a very quick overview and introduction of what is appropriate for any activity that is required to submit a decision support package. Emphasis in this short exchange will be on some of the most likely pitfalls to be encountered by novice and not so novice submitters.

Author:

Darrell Hamilton
Defense Acquisition University
Darrell Hamilton is a Professor of Business Cost Estimating at the Defense Acquisition University (DAU); teaching most cost estimating courses offered by DAU. He also is currently the course manager for BCF215, Operating and Support Cost Analysis and is the primary author and course manager for a new course called Cost-Benefit Analysis for Army Programs. Prior to rejoining the government at the Missile Defense Agency in 2008 as a Senior Cost Analyst, he held various positions in industry such as Strategic Director of Project Management and Quality (Software Systems) for LabCorp, Managing Director of Marketing Automation at Trans World Airlines (TWA) and Project Manager of Operations Research Systems at TWA. Prior to his 13 year stint with industry, Darrell worked for the US Army TRADOC Analysis Command first as an officer and then as a contractor, developing cost-tradeoff and military war games (Vector-in-Commander (VIC) and TacWar). Mr. Hamilton has a Master of Science in Operations Research from the Naval Post Graduate School and a Bachelor of Science in Chemistry from Georgia Tech. He is a graduate of the US Army Command and General Staff College and served 11 years on active duty as an officer in the US Army Chemical Corps.