AMERICA’S ARMY: THE STRENGTH OF THE NATION
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Cost-Benefit Analysis (CBA)
Four-Day Training Briefing
Step 4: Develop Cost Estimates for
Each Alternative
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
Key Learning Objectives
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Objectives:
• Obtain an introduction to cost estimating
• Understand cost fundamentals
• Understand the cost estimating process
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Prepare for the cost estimate
Establish a framework for the estimate
Establish the timeframe for the estimate
Identify data sources and collect data
Develop the estimate
Identify cost of second- and third-order effects
Prepare supporting documentation
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Step 4: Develop Cost Estimates for Each
Alternative
1. Define the Problem/Opportunity and
Objective
Cost Estimate:
2. Define the Scope; Formulate Facts and
Assumptions
• Captures the total cost of each alternative over
its relevant life cycle
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3. Define Alternatives
4. Develop Cost Estimates for Each
Alternative
5. Identify Quantifiable and
Non-Quantifiable Benefits
Cost estimate requires robust documentation to
facilitate review and validation of the CBA.
6. Define Alternative
Selection Criteria
7. Compare Alternatives
8. Report Results and Recommendations
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Outline
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Introduction and overview
Cost fundamentals – a brief primer
Principles and rules
Tools
Cost Estimating Methods
Summary and conclusion
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Introduction and
Overview
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Cost and Cost Estimating Definition
Cost:
•
The monetary representation of resources used, sacrificed, or liabilities
incurred to achieve an objective.
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– Example:
 The resources expended in acquiring or producing a good
 The resources expended in performing an activity or service
Cost Estimating:
•
The process of collecting and analyzing data and applying quantitative
models, techniques, tools, and databases to estimate the future cost of an
item, product, program, or task.
Cost estimating is thought by some to be difficult, but the skills
and knowledge are logical and straightforward. It isn’t rocket
science.
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Purpose of Cost Estimating
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• Enable managers to
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Make resource-informed decisions
Develop and defend budgets
Identify specific cost drivers
Improve cost controls
• Translate system/functional needs associated with
programs, projects, proposals, or processes into
costs
• Determine and communicate a realistic view of the
probable costs, which will be used to inform the
decision-making process.
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Characteristics of a Good Cost Estimate
• Well documented
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Includes source data and its significance
Clearly details calculations and results
Contains explanations for choosing a particular method or reference
• Comprehensive
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Ensures a level of detail where cost elements are neither omitted nor double
counted
• Accurate
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Avoids bias and overly conservative or optimistic estimates
Bases its assessments on most likely scenarios and assumptions
• Credible
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Discusses any limitations of the analysis deriving from the uncertainty/bias of the
data or assumptions
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Cost Fundamentals
A Brief Primer
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Examples of Cost Estimates
 This discussion will focus on
cost estimating to support
CBAs
 But … these types of
estimates are not totally
separate from each other.
Concepts from other types
can also apply to CBA.
• Cost estimates may be used in
any decision-making process, but
particularly in:
– Contracts and acquisitions
– Cost Benefit Analysis (CBA)
• Analysis of Alternatives (AoA)
• Economic Analysis (EA)
• Business Case Analysis (BCA)
– Independent Cost Assessment
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Some Characteristics of Costs
Costs may be:
• Direct or indirect
• Recurring or nonrecurring
• Burdened or unburdened
• Variable or fixed
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Direct vs. Indirect
Direct Cost
• Can be easily and conveniently traced to a specific cost element/objective
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– Example: The cost of ammunition fired in a training event at the firing range
Indirect Cost
• Cannot be easily and conveniently traced to a specific cost element/objective
– Example: Installation support to the firing range (utilities, upkeep, etc)
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Recurring vs. Nonrecurring
Recurring Cost
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Cost that is incurred regularly in producing a product or providing a service
– Examples: Civilian and military personnel who conduct the activity, recurring
sustainment of facilities, supplies, personnel training, utilities, equipment
maintenance, janitorial service, office supplies
Non-Recurring Cost
• Cost that only occur once or infrequently.
– Examples: Major items of equipment, major and minor construction, one-time
training in new procedures, activities conducted in direct support of individual
process improvement efforts
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Burdened vs. Unburdened
Unburdened Cost
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•
Cost of a product/service that does not consider other related costs necessary to
provide that product/service.
– Examples: Direct compensation, cost of a gallon of fuel in a theater of
operations, etc.
Burdened Cost
•
Cost of a product/service plus an apportioned cost of other related costs necessary
to provide that product/service.
– Examples: Salary plus the cost of benefits (health, retirement, etc.), facilities
support cost allocated to an activity or personnel
– There are degrees of burden in a CBA. For example:
• Direct compensation for military and civilian personnel is always burdened
with the cost of personnel benefits
• Facilities support cost is allocated to a COA only if it can demonstrated that
the COA causes the cost to be incurred
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Variable vs. Fixed
Variable Cost
• A cost that varies based on the level of activity or output. This can be either a linear
relationship or a step function.
– Examples: Fuel cost for vehicles varies in a linear fashion relative to the number
of miles driven. The number of instructors needed to teach a class can vary in a
step function based on the number of students (e.g., 1 instructor for 25 students,
2 instructors for 26-50 students, etc).
Fixed Cost
• A cost that does not vary based on the level of activity or output.
– Example: At an Army installation, the cost associated with the commander and
his/her immediate staff is unlikely to vary as the installation population or other
variables change.
Fuel Cost as a Function of
Miles Traveled
Instructors as a Function
of Class Size
100
5
80
4
60
3
40
2
20
1
0
1000
900
800
700
600
500
400
300
200
100
0
0
100
200
300
Variable
400
Note: Most
costs are semivariable
Cost of Cmd Gp ($K) as a
Function of Installation
Population
5 9 1317212529333741454953
Semi-Variable
5,000 10,000 15,000 20,000
Fixed Cost
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Cost Drivers
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Organizations perform work activities to
deliver products/services to a stakeholder.
 Definition: Factors, activities, or events that cause costs to be incurred
 Usually can be quantified/measured (e.g., number of hours spent on a task,
supported population)
 Analyst should identify and focus on the primary cost drivers that affect total
cost
 Helps to ensure the accuracy and reliability of the cost estimate
 Makes it easier to control costs within the organization
 Examples:
 The labor cost associated with assembling a HMMWV at a the factory would be
driven by the quantity of vehicles produced
 Energy consumption at the PX is driven by the square footage of the building and
the operating hours
 The cost of printing budget documents for the Office of Management and Budget is
driven by the number of pages in each set and the number of sets needed
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Second Order Effects
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• The cost of second order effects—the effects of the COA under
consideration beyond the immediate effects—must be taken into
account in the cost estimate.
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Normalization and Inflation
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• Adjusting for inflation is a specific form of normalization, an
adjustment intended to make a given data set consistent and
comparable with other data sets
• A frequent use of simple normalization is to adjust based on
quantities. For example:
– In a manufacturing process, COA 1 produces 17,000 widgets per year at a
total cost of $33,765 and COA 2 produces 14,500 widgets at a total cost of
$28,725. It’s difficult to evaluate these COAs unless we normalize by
computing a unit cost, which shows us that COA 2, with a unit cost of
$1.95 per widget, is preferable to COA 1, which has a unit cost of $1.99.
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What is Inflation?
Definition
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• A rise in the general level of prices
• Measure of change in the dollars’ purchasing power
• In other words
•
•
A given dollar amount will have less buying power next year than it
does this year
To maintain consistent buying power, we must adjust this year’s
dollars with the inflation factor from year to year
Common methods for normalization:
• Discounting
• Constant (Base) Year
Of all the topics discussed in cost analysis, none will be
encountered more frequently than inflation.
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Inflated Dollars – Terminology and Uses
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Type of Dollar
Other Terms
When Used
Constant
Base Year
Uninflated
Used in the cost estimate of a CBA to
compare COAs and to make the
decision
Current
Then-year
Inflated
Used to determine the POM/budget
resourcing impact of a COA. For the
approved COA, the current dollar
estimate is the amount that must be
funded in each year.
Therefore, it is also used to determine
the dollar amount of required billpayers.
 Constant-dollar values must be accompanied by a base year:
The fiscal year in which the program was initially funded or the
analysis was performed.
 Constant and current year data cannot be used in the same
analysis.
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Inflation Calculation and Examples
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• Basic calculations:
– (Constant Dollars) * (Inflation Factor) = Current (Dollars)
– Inflation is compounded from year to year (i.e., multiplied, not added).
• Example: A loaf of bread in 1950 cost $0.25. In 2011, it costs $3.00. Supposing
that the price of bread is a good indicator of the general price of goods, then
FY1950 $0.25 is worth $3.00 in 2012. In other words, $0.25 could buy in 1950
what $3.00 buys in 2011—and between 1950 and 2011 there was 1100%
inflation (12 x). The average annual inflation rate can be calculated to be
about 4.1% (12 raised to 1/61 power, so that 1.041^61 = 12).
• If between 2007 and 2011 there was 3% inflation each year, then $1 in 2007
could have bought what $1 x 1.03 x 1.03 x 1.03 x 1.03 x 1.03 = $1.16 can buy
in 2011.
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Example—Current Dollar Calculation
• Data: We’ve calculated the annual cost for a given COA in FY12
constant dollars:
To implement this COA in the
POM/budget, the dollar
amounts in the three righthand columns would be used.
To cost the COA in the CBA, the
Const. Dollar Cost column
should be used.
– Civilian personnel: $145,000
– Contract support: $100,000 (paid by OMA appropriation)
UNCLASSIFIED
• Applicable inflation factors:
– Civilian personnel: 2% per year
– OMA appropriation: 3% per year
• Calculation for the first three years of the life-cycle:
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Cost
Element
Const.
Dollar
Cost
Infl.
Factor
Current- Dollar Calculation
Current-Dollar Cost
FY12
FY13
FY14
FY12
FY13
FY14
150,858
Civ per
145,000
2%
145,000
145,000
* 1.02
145 *
1.02^2
145,000
147,900
Contract
100,000
3%
100,000
100,000
* 1.03
100,000
* 1.02^2
100,000
103,000
Total cost
245,000
245,000
250,900
256,948
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UNCLASSIFIED
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Cost Estimating Principles and Rules
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Cost Estimating Principles and Rules
• Use authoritative data sources
• Ensure that cost estimates support “apples-to-apples”
comparison among COAs
• Ensure the cost estimate is well-documented, comprehensive,
accurate, and credible
• Constant vs. current dollars
– Use constant (uninflated) dollars for even comparison for COAs in CBAs
– Convert estimate to current (inflated) dollars to determine POM/budget
resourcing requirements
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Cost Estimating Principles and Rules
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• The timeframe for the cost estimate is the life-cycle of the COAs.
For example:
– If the CBA seeks the best solution for housing Soldiers at a CONUS
installation, one of the COAs might call for constructing a barracks with a
50-year useful life. In this case, the life-cycle timeframe would be 50
years.
– If the CBA addresses a requirement that will exist for only three years, the
life-cycle timeframe would be three years.
– Must use the same timeframe for all COAs
• The timeframe for the POM/budget resourcing estimate is the
full POM/budget period* or the life-cycle timeframe, whichever
is shorter.
* The POM/budget period includes the year of execution (current year), the budget year (next year),
and the POM period (four or five years beyond the budget year).
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Cost Estimating Principles and Rules
UNCLASSIFIED
• Timeframe example:
– Two weapons systems being compared in a CBA have different life-cycles.
The system in COA1 has a life-cycle of 5 years, while the one in COA2 has a
life-cycle of 7 years.
– The timeframe should be the same for both cost estimates—in addition, it
should include a whole number of life-cycles for both systems.
– The appropriate timeframe in this case is 35 years. This would allow for 7
complete life-cycles for COA1 and 5 complete life cycles for COA2.
COA1
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5
5
5
5
5
5
5
COA2
7
7
7
7
7
35 years
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Sunk Costs
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• In general, sunk costs—costs that have already been incurred
regardless of which course of action is chosen—should not be
included in a cost estimate.
• For example, in a CBA evaluating options for which weapons
system to deploy: if COA 1 deploys a weapon system that has
already been procured (procurement cost is a sunk cost), and
COA 2 uses a weapon system that still needs to be procured, then
the procurement costs for the system in COA 1 should not be
included in the cost estimate.
• In certain cases, sunk costs can be included in an estimate, but
should only be used as a baseline—it should not factor into the
analysis for comparison between COAs.
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Include Supporting Documentation
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• After a CBA is submitted, the analyst who prepared the cost
estimate might not be immediately available to answer
questions.
• How supporting documentation is used:
– A CBA reviewer should be able to use the supporting documentation, with
no additional input, and arrive at a cost estimate identical to that in the
CBA.
– If an analyst must consult the estimate several months after it is finalized,
the supporting documentation will eliminate the need to reconstruct the
thought process, data sources, and calculations supporting the estimate.
– If the analyst is no longer available, subsequent analysts can use the
documentation to understand how the estimate was prepared so that
adjustments can be made if needed.
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What to Include in Supporting Docs
• Identification of all data sources
• Rationale, assumptions, and the thought process that
produced the estimate
• Points of contact for all data.
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Guidelines for Excel
• List cost elements in a
spreadsheet
• Include POCs for all
preparers/analysts
• Hyperlink websites
• Reference all data sources
• Use comments to document
and explain costing
methodology
• Cells that contain equations
should be free of constants—
link to other cells instead, so
that it is clear what data is
being used in the calculation.
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UNCLASSIFIED
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Tools
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Available Tools and Models for Cost Data
Data Sources
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Personnel
Facilities
Equipment
Modeled costs
AMCOS must be used for
military and civilian
personnel compensation
and benefits
Form 1391 – MILCON
construction costs
Unified Facilities
Criteria
Army Equipping
Enterprise System
Equipment costs by LIN
Facilities sustainment
costs estimation
FORCES
OPTEMPO, equipment, force structure,
transportation, CONOPS
Services, leases, and
equipment
Electronic Document Access
Contract data
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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
URL
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
UNCLASSIFIED
FORCES Cost Models
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Purpose
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
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AMCOS
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AMCOS
AMCOS ApplicationsAMCOS lite
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Capabilities Knowledge Base
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Capabilities Knowledge Base
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OSMIS
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OSMIS
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Cost Estimating Methods
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Available Cost Estimating Methods
Available methods:
• Analogy
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• Parametric
• Engineering
• Actual Cost
• Expert Opinion
• Learning Curves
Most CBAs utilize all cost estimating
methods.
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Cost Estimating Methods
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The use of each method is based on the
information available to support it.
GROSS ESTIMATES
Parametric
DETAILED ESTIMATES
Actual Costs
Engineering
Analogy
Figure 1: A summary of the usual application of each technique.
Source - Acquisition 101 Lesson 8: Financial Management: Cost Estimation
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Cost Estimating Methods: Analogy Method
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Analogy Method:
• Estimates the cost, based on historical data, of an analogous
system or subsystem
• Utilizes a current fielded system that is similarly designed to the
proposed system
• Adjusts historical cost of the current system to account for
differences
– Adjustments should be made through parameters/scaling factors based
on quantitative data

These adjustments should show validity of comparison
When is it used?
• When an analogous case (that can be applied to a subsystem or
component level) exists
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Example - Analogy Method
Attribute
Old System
New System
Engine:
Thrust:
Cost:
F-100
12,000 lbs
$5.2M
F-200
16,000 lbs
?
Q: What is the unit cost of the F-200?
A: $5.2M * (16,000/12,000) = $6.9M
Warning 1: An adjusted analogy
is like a regression, but the
slope is just a guess.
Warning 2: An adjusted analogy is,
by definition, estimating outside
the range of the data.
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Analogy Method Estimating with Factors
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𝑁𝑒𝑤 𝐶𝑜𝑠𝑡
= (𝑂𝑙𝑑 𝐶𝑜𝑠𝑡) ∗ (𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 𝐹𝑎𝑐𝑡𝑜𝑟)
Element
Old Sys1
Old Sys2
Old Sys3
New Sys
Airframe
$500/lb
$250/lb
$750/lb
1.2 x Sys1
Engine
2M/Unit
3M/Unit
5M/Unit
.8 x Sys3
Avionics
$3K/lb
$2K/lb
$4K/lb
1.0 x Sys2
Payload
6M/Unit
8M/Unit
7M/Unit
.65 x Sys1
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Cost Estimating Methods: Parametric Method
UNCLASSIFIED
Parametric Method:
• Uses regression or other statistical methods to develop a cost
estimating relationship based on observed patterns of how
specific parameters influence total cost.
• Utilizes:
• High-level Work Breakdown Structure (top down approach)
• A database from elements of one or more systems
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When is it used?
• Historical data is available but not detailed
• In earlier stages of the system or project life cycle
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Example - Parametric Method
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High Mobility Wheeled Vehicles Database
Vehicle
M274
M561
M656
M520
Cost of
First Unit
$ 9,585
50,002
93,262
147,889
Gross
Weight
1,770
8,363
24,785
36,590
Curb
Weight
970
5,363
14,785
10,500
Cubic Ft
Shipping
81.6
732.3
1,227
2,368
Net
Horsepower
12.5
93
183
176
Is ‘Cubic Ft Shipping’ a good predictor of cost?
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Example - Parametric Method (Cont’d)
Cost of First Unit vs. Shipping Capacity
Cost of First Unit ($K)
UNCLASSIFIED
200000
150000
100000
50000
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0
0
500
1000
1500
Cubic Feet of Shipping
2000
2500
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐹𝑖𝑟𝑠𝑡 𝑈𝑛𝑖𝑡
= 60.992 ∗ 𝐶𝑢𝑏𝑖𝑐 𝑆ℎ𝑖𝑝𝑝𝑖𝑛𝑔 𝐹𝑒𝑒𝑡 + 7957.2
We can estimate the cost of any vehicle given the
shipping capacity using the above equation.
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Cost Estimating Methods: Engineering Method
Engineering Method:
• Breaks down the system of interest into lower level
components, each of which is estimated separately
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– Work Breakdown Structure
• Uses algebraic equations (bottom up approach)
– Most detailed of all techniques
• Requires extensive knowledge of a system’s characteristics and
the respective detailed data
• Is expensive and time consuming
When is it used?
• All potential costs can be assumed or estimated
Types of Army data sources (AMCOS Lite,
MILCON, SRM, historical ,execution, travel, etc.).
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Developing the WBS
• What the WBS does:
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– Ensures that all component elements are identified so that all costs are counted
once and only once
– Provides a systematic, standardized way to collect data.
• Decompose to as many levels as needed
• Example: The airplane cockpit can be decomposed into its subelements:
– Instrument panel
• Primary flight instruments
–
–
–
–
Directional gyro
Turn and bank indicator
Altimeter
Airspeed indicator
• Avionics controls
– Communications
– Navigation
– Radar
– Flight control systems
• Rudder pedals
• Steering yoke
• Trim tab controls
– Seats
• Seat and shoulder belts
• Cushions
• Head rest
… and so on
A well-decomposed process flowchart that defines/describes
the COA is a useful tool in developing the WBS
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WBS – Another Example
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Cost Estimating Methods: Actual Cost Method
UNCLASSIFIED
Actual Cost Method:
• If historical costs from experience or trends from prototypes,
engineering development models, and early production items
are available, they can be used to cost current goods or
services.
• Extracts costs that were actually incurred on same system
during an earlier period
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– Obtaining access to these actual costs may be difficult
When is it used?
• The actual data from the same system is present
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Example – Actual Cost Method
a. The development process is nearing completion.
b. The materials have all been procured at a cost of
$20M.
c. The labor cost to date is $30M.
d. According to earned value cost performance reports
(CPRs), the estimated cost at completion for the
remainder of the labor is another $20M.
Cost = $20M + $30M + $20M = $70M
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Cost Estimating Methods: Expert Opinion Method
Expert Opinion Method:
• Obtains opinions from experienced individuals or group
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– Document the sources of opinions
– List attributes of the sources
When is it used?
• When availability of data is limited.
Delphi Technique
1. Query expert opinion from group
2. Seek expert opinion from each group, and then summarize results to
send in reports
3. Gather another opinion and summarize those results
4. Continue process until experts reach a consensus
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Example - Expert Opinion Method
Scenario: Three software engineers are
recognized experts in ERP software development.
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UNCLASSIFIED
1. You hold interviews to explain the Stakeholders’ Needs, sizing
level, and development process for your new system.
2. Each member of the group submits his/her opinion of the
final cost.
3. If all expert opinions converge to or hover around the same
figure, that may be taken as a good cost estimate.
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Cost Estimating Exercises
CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
1. The Army Corps of Engineers needs to estimate the cost of
constructing a special type of portable, aluminum bridge. Data
for past construction projects for an analogous type of bridge is
given in the following table.
Bridge 1
Bridge 2
Bridge 3
Bridge 4
Bridge 5
130
130
180
200
300
# of Cables 5
used
7
7
9
3
Total Cost
$281K
$381K
$427K
$609K
Length (ft)
$275K
Give a cost estimate for a bridge of length 450 ft built with 8
cables.
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CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
Cost Estimating Exercises
2) A new type of MRE is being manufactured by a contractor, and the
Army is looking for its own cost estimate in order to compare price
quotes. A WBS reveals the following information: each MRE contains ¼
lb of dehydrated lobster, 1 lb of 90% lean beef jerky, ½ lb of pasta, ½ lb
of dehydrated carrots, and a self-heating pouch. Historical costs of the
heating pouch, pasta, and carrots are known: they are $1.50, $3/lb,
and $1/lb, respectively. You have consulted 3 fisheries experts, who
have given you estimates of $7.25, $6.80, and $7.05 for each pound of
dehydrated lobster. Costs of beef jerky and labor, by certain
parameters, are given below. Give an estimate of the production cost
per MRE packet.
Jerky 1
Jerky 2
Jerky 3
% lean
75
80
85
Cost/lb
$1.50
$1.60
$1.70
MRE 1
MRE 2
MRE 3
Edible
weight
1 lb
2 lbs
3 lbs
Labor
Cost/MRE
$0.50
$1.00
$1.50
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CBA 4-DAY TRAINING SLIDES
59
UNCLASSIFIED
CBA 4-DAY TRAINING SLIDES
60
UNCLASSIFIED
CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
Summary and
Conclusion
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Closing Thoughts
CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
• The cost estimate is a critical part of a CBA and is likely to
receive significant scrutiny
• A cost estimate that is clearly presented, logical, and welldocumented will help send a positive message to users of
the CBA
• A wide range of tools is available to support the analyst.
• Cost estimating requires logical thinking and a some
understanding of resource management concepts, but it’s
not rocket science. Most people should be able to acquire
the necessary skills and knowledge.
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CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
Cost Analysis is NOT Magic
Cost Analysis is not magic!
An effective cost analysis is well documented,
comprehensive, accurate, and credible.
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CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
Review Exercise: Henry Ford
• 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. After negotiating with the landlord, it
was agreed that the garage door could be widened for a onetime payment of $25.
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Review Exercise: Henry Ford
CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
• Provide a cost estimate for each of the following COAs:
– COA1 (Status Quo): Leave the car in the garage, do nothing else.
– COA2: Disassemble the car and reassemble it outside the garage.
– COA3: Widen the garage door.
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Mini-case Exercise #4
or “how much can I spend again?”
CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
•
U.S. Army Special Operations Command has scheduled the procurement of seven
“Longbow Apache 2” helicopters with a preliminary delivery date of 15 May 2013 (with
95% certainty). Normal procurement cost per Apache is $35M. Each of the new
Apaches has been ordered with a classified modification to suit the customized
mission requirements of USASOC, at an additional cost of $7M over the normal
procurement cost for each Apache. All seven customized Apaches are necessary for
mission effectiveness. It is known that to achieve the delivery date of 15 May 2013 at
the given degree of certainty, the required production rate must far exceed normal
capacity, and that this contributes as a cost factor. An analysis of past production
performance has determined that the relation between cost and risk can be
approximated by r = 0.09c2 – 1.24c + 4.32 (for values of c between 3.64 and 10) where
r is the risk (expressed as a decimal between 0 and 1) that delivery will miss the
deadline, and c is the cost in millions of dollars over the normal procurement cost per
Apache. After setting the delivery date at 15 May 2013, USASOC receives an order
from SECARMY restricting total procurement costs for the Apache procurement
program to $280M. USASOC now needs to determine the optimal value of c. Perform
all 8 CBA steps to determine alternatives and recommend a course of action.
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Mini-case Exercise #4
CBA 4-DAY TRAINING SLIDES
UNCLASSIFIED
or “Apache Part II: who should I listen to?”
• Due to a last minute change in mission requirements, the original
modification has been scrapped in favor of one with a wider range of
alternatives. As in part (a), a maximum of $5M per helicopter may be spent on
the new modification. The modification can be customized according to two
dimensions: survivability and lethality, each scored on a scale between 0 and
1 (1 being the best possible). The associated costs are $5M per point for
survivability, and $10M per point for lethality. Suppose that the benefit score
may be calculated as LxSy, where L is the score for lethality, S is the score for
survivability, x is the weight (as a decimal) placed on lethality, and y is the
weight given to survivability. To determine the relative importance of these
two dimensions to the mission, you have conducted a survey within three
separate populations: infantry, Apache pilots, and USASOC commanders.
Among infantry, the consensus is that x = 0.8 and y = 0.2. Among pilots, the
consensus is that x = 0.3 y = 0.7. Commanders believe x = 0.6 and y = 0.4. State
the problem, objective, constraints, and determine alternatives and the
recommended course of action.
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