Methodology for Conducting Cost Benefit Analysis
to Support Energy Security Investments
Prepared By
Dr.The
JohnCBA
V. Farr
and Cadet Process
Mary Prakel
Eight-Step
Department of Systems Engineering
Using analysis to make the case for a project or proposal:
Weighing the total
expected costs
against the total expected
benefits
United
States
Military
Academy
over the near, far, and lifecycle timeframes from an Army enterprise perspective.
COSTS
The total of quantifiable and
non-quantifiable costs
Quantifiable costs
Direct
Indirect
Initial/Start up
Sustainment
Procurement
Salary and Benefits
Non Quantifiable costs
Life/Safety/Health
Perception/Image
Opportunity
Risk/Uncertainty
Political
1. Define the Problem/Opportunity;
Describe the Background
2. Define the Scope;
Formulate Facts and Assumptions
3. Define Alternatives
4. Develop Cost Estimate
for Each Alternative
5. Identify Quantifiable and
Non- Quantifiable Benefits
6. Define Alternative
Selection Criteria
7. Compare Alternatives
8. Report Results and
Recommendations
BENEFITS
The total of quantifiable and
non-quantifiable benefits
Quantifiable benefits
Cost savings and
avoidances
Increased productivity
Reduced processing time
Reduced error rates
Increase in capacity
Non-quantifiable benefits
Better Information for
decision making
Easier to use or access
Increase in choice or
options
Reduced redundancy
Achievement of
organizational
goals/objectives
BENEFITS MUST BALANCE OR OUTWEIGH COSTS AND REQUIRED TRADE-OFFS
White Paper 2013- 1
January 2013
Abstract
The purpose of this research is to develop and articulate a cost
benefit analysis (CBA) process specifically for investments in
energy security projects. This guide will assist Army analysts
and agencies in preparing a CBA to support Army decisionmakers in funding these capital projects. This guide will also
assist analysts in identifying, quantifying, and evaluating the
future costs and benefits of alternative solutions. Note that
this document/guide is intended for general use for only in the
energy security functional areas and was written by modifying
the U.S. Army, Cost Benefit Analysis Guide, 3rd.
This guide describes a CBA process that comprises eight major
steps.
1. Define the problem / opportunity to include background
and circumstances,
2. Define the scope and formulate facts and assumptions,
3. Define and document alternatives (including the status
quo if relevant),
4. Develop cost estimates for each alternative (including
status quo if relevant),
5. Identify quantifiable and difficult to quantify benefits,
6. Define alternative selection criteria,
7. Compare alternatives, and
8. Report results and recommendations.
Much of the new research presented herein is focused on
developing quantifiable and difficult to quantify benefits for
energy security projects.
In today’s resource-constrained environment, the Army must
exercise wise stewardship of every dollar it manages. A key
element in our stewardship is to develop and use sound CBA
practices throughout all requirement/resourcing processes.
Energy security is a key force enabler and power projection
issue.
CENTER FOR NATION RECONSTRUCTION AND
CAPACITY DEVELOPMENT
United States Military Academy
West Point, New York 10996
The views and opinions expressed or implied in this report are solely those of the authors and should
not be construed as policy or carrying the official sanction of the United States Army, the Department of
Defense, United States Military Academy, or other agencies or departments of the US government.