FINANCIAL MANAGEMENT SCHOOL Cost Analysis SHOW SLIDE 1: COST ANALYSIS Lesson Title Identify the Cost Analysis Process Clearance Access Security Level: Unclassified Requirements: There are no clearance or access requirements for the lesson. Foreign Disclosure Restrictions FD5. This product/publication has been reviewed by the product developers in coordination with the Fort Jackson Soldier Support Institute foreign disclosure authority. This product is releasable to students from all requesting foreign countries without restrictions. Instructor Requirements Must meet physical qualifications IAW AR 600-9. Materials Required Instructor Materials: Lesson plan slides, AR 1-1, AR 70-1, AR 11-18, DA Cost Analysis Manual, DoD Manual 5000.1, and DoD Manual 5000.2 Student Materials: Cost Analysis Summary Sheet, Cost Analysis DA Manual, and Cost Benefit Analysis Guide 24 Apr 2013 Classroom, Training Area, and Range Requirements General Purpose Classroom - 25 Seats Instructional Guidance Note: Before presenting this lesson, instructors must thoroughly prepare by studying this lesson and identified reference material. Also, provide the students with situational awareness of the Operational Environment (OE) variables and actors. Proponent Lesson Plan Approvals Name Rank Position Date Harris, Norman CTR Writer/Developer xx-xxx-xxxx Bonig, Reid GS-12 Chief - FMITD xx-xxx-xxxx Davis, Bobby LTC FM-DOT xx-xxx-xxxx Zellars, Eric COL Commandant xx-xxx-xxxx Motivator: Why is Cost Analysis important? Everything costs money. We always talk about how much stuff costs. - How do we know what that is? - Through Cost Analysis Cost analysis answers the question of how much. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Terminal Learning Objective Action: Conditions: Standard: Identify the Cost Analysis Process Given a summary sheet containing AR 1-1, AR 70-1, AR 11-18, DA Cost Analysis Manual, DoD Manual 5000.1, and DoD Manual 5000.2, and slides. With 80% accuracy: Identify & analyze each steps of the Cost Analysis Process. SHOW SLIDE 12: Terminal Learning Objective ADMINISTRATIVE DATA Academic Hours/Method 805A-AJAPE106 / 4.1 Technique of Delivery Hours Method of Instruction Introduction 0.1 (CO) Conference/Discussion Large Group Instruction 1.8 (CO) Conference/Discussion Summary 0.1 (CO) Conference/Discussion Total: 2.0 NOTE: Incorporate the political, military, economic, social, information, infrastructure, and physical environment and time (PMESII&PT) into each lesson and classroom work as appropriate. Instructor will illustrate them with appropriate examples from the Current Operating Environment (COE) as it pertains to the lesson. Motivator: As a resource manager, it is important to know where and how your organization fits into deployed environment. To succeed, you must know the DoD, DA, ASA(FM&C) organization structures, and the operational environment. Knowledge of these structures will enhance your understanding of how resources are allocated and how resource management structures influence or facilitate resource allocation. Military commanders have always been concerned with cost (at least the good ones were). However, they looked at cost in terms of men and equipment. Today’s commanders must also consider cost in terms of resources, or more precisely, dollars. Reduced resources mean that management of resources is more important. The capability to measure cost is a prerequisite to cost management. When working budgets you want to track the resources that are consumed to the activities being performed that provide a product or service. The question you’re trying to answer is what or who is causing me to utilize and consume my resources. We use CBA as a cost measurement tool to help understand costs and make informed decisions on funding programs and activities. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

What is Cost Analysis? A structured methodology for forecasting and comparing the anticipated costs and benefits of alternative courses of action in order to identify the optimum solution for achieving a stated goal or objective. In simpler terms: Identify alternative courses of action (COA) for solving a problem Determine the costs and benefits for each COA With a sound rationale, pick the best COA SHOW SLIDE 3: Cost Analysis This is the definition of Cost Analysis. Basically the process we go through to estimate our resources required. - Includes all lifecycle costs - Parts, fielding, maintenance, disposal A CBA is a decision support tool. A good CBA provides a value proposition in order to solve a problem or leverage an opportunity. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL 4

Why Cost Analysis are Required Senior leaders have directed that CBAs be used because we must: Make the best possible use of limited funds. Before making resourcing decisions… Treat costs as an up-front consideration, not as an afterthought. Understand how much benefit will be derived. Assist in the identification of potential bill-payers and/ or trade-offs. Consider the second- and third- order effects of our decisions. USA and VCSA: … we are directing that each unfunded requirement and new or expanded program proposal … be accompanied by a thorough CBA

FINANCIAL MANAGEMENT SCHOOL DASA-CE Mission Provide Army decision-makers with cost, performance and economic analysis in the form of expertise, models, data, estimates and analyses at all levels Develop and promulgate cost and economic policies, methods and procedures Provide timely and quality cost and economic support to the PPBE and Army staff decision- making processes Manage the Army’s cost analysis career field SHOW SLIDE 6: ODASA-CE Mission You need a thorough and accurate analysis of the life cycle costs of a system, so programmers, budget personnel, and leaders will be able to make informed decisions. The people who provide this are: DASA-CE (Office of the Deputy Assistant Secretary of the Army for Cost & Economics) Mission of DASA-CE 1. Provide Army decision-makers with cost, performance and economic analysis in the form of expertise, models, data, estimates and analyses at all levels 2. Develop and promulgate cost and economic policies, methods and procedures 3. Provide timely/quality cost and economic support to the PPBE and Army staff decision-making processes 4. Manage the Army cost research program 5. Manage the Army’s cost analysis career field 6. Manage the Army Visibility and Management of Operating and Support Cost (VAMOSC) Program 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

When Cost Analysis’ are Required New, unfunded or expanded requirement going to USA and/ or VCSA for decision With Concept Plans, Force Design Updates and Legislative Proposals In support of VCSA Capability Portfolio Analyses Issues going to ACP, BRP, AR2B for decision For initiatives developed in response to directive from Army leadership, OSD, or Congress To support POM development. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

FINANCIAL MANAGEMENT SCHOOL Weapons Systems Abrams Tank (M1A1 and M1A2) Bradley Fighting Vehicle (M2 and M3) Interim Fighting Vehicle (IFV) Comanche Helicopter (RAH-66) Sense and Destroy Armor (SADARM) Patriot Missile Army Tactical Command and Control System Stryker Vehicles (M1126) SHOW SLIDE 4: Weapons Systems Before we jump off too deep into Cost Analysis, let's differentiate between weapon systems and information systems. Weapon systems are the aggregation of components that Move, Shoot, and Communicate. This slide shows you some of the "big name" examples. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Automated Information Management Systems Property Book Unit Supply Enhanced (PBUSE) Global Combat Support System-Army (GCSS-A) Electronic Military Personnel Office (EMILPO) Standard Installation and Division Personnel System (SIDPERS) Range Facility Management Support System (RFMSS) Financial Management Tactical Platform (FMTP) SHOW SLIDE 5: Automated Information Management Systems 2nd category of system is Information Systems - Aggregation of hardware and software that allows you to manage information in different configurations So its not just a computer - it is the hardware and software - the major system Here are some examples 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

FINANCIAL MANAGEMENT SCHOOL Cost Categories COST CATEGORIES RDT&E………………………... Procurement…………………. Military Construction……..... Military Personnel…………... Operations & Maintenance... WCF…………………….……... APPROPRIATIONS RDT&E Procurement MCA, MCAR, MCANG MPA, RPA, NGPA OMA, OMAR, OMANG Revolving SHOW SLIDE 7: Cost Categories There are different categories of cost associated with obtaining a system and these are the different appropriations associated with them. All the cost categories / appropriations represent the Life Cycle Costs of a system. We need to break costs down by appropriation to see how much a system will cost to see if we want to continue with it or even start it. We already discussed what these funded in RDA. RDT&E - Research, engineering design, prototype production, and test and evaluation activities Procurement - The actual procuring or buying weapon or information system – 5 accounts MCA - The construction of special facilities required to support the fielding of a weapon system or information system, and/or the materiel. MILPAY – Sometimes need personnel assigned to the system for development or even may need to add more people in a MOS for a system OMA - The retiring and retrofitting of the old equipment being replaced, repairing new systems after fielding, fuel and ammunition for training and operations, and training operators and maintainers. Working Capital Fund (WCF) – No direct appropriation. Funded from collections of agencies' appropriations. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Cost Analysis Products EA - Economic Analysis AOA - Analysis of Alternatives POE - Program Office Estimate CCA - Component Cost Analysis CAB - Cost Analysis Brief ACP - Army Cost Position SHOW SLIDE 8: Cost Analysis Products Once the total costs or cost estimates have been determined for a weapon system or information system, the cost categories will be packaged in one or more of the following formats: EA - Choose one (a product) based on costs alone - not done with weapon systems but is done with computer systems AOA - Evaluation of the advantages and disadvantages of alternatives being considered to satisfy a requirement - (it is used with weapon systems) POE - Life cycle cost estimate continuously being updated by PM - Where does POE fit in? - After PM does the Program Baseline and the Performance Cost Schedule is updated (From RDA) CCA - Life cycle cost estimate done by ODASA-CE - So its independent (Outside Acquisition Chain of CMD) CAB - Document that lists and resolves differences between the POE and CCA (PM vs ODASA-CE) - So if POE and CCA don’t match then the CAB resolves the differences - The Cost Working-level Integrated Product Team is the one who does this ACP - Once differences are settled and they agree, this becomes the cost position of the item in the Army’s eyes - Request for funding now occurs 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Cost Analysis Link to PPBE WEAPON INFORMATION SYSTEM SYSTEM PROGRAM MANAGER POE EA ODASA-CE CCA CCA ASA(FM&C) ACP ACP SHOW SLIDE 9: Cost Analysis Link to PPBE Just a different way to look at our Cost Analysis Products Program Office Estimates (POE) and Component Cost Analysis (CCA) are done to come up with the Army’s Cost Position (ACP) 1. Program Manager (PM) - POE is done with Weapon Systems - EA is done for Information Systems (A POE is not done with Information Systems) 2. DASA-CE or USACEAC conducts a Component Cost Analysis (CCA) on both weapons and information systems 3. ASA(FM&C) – comes up with the Army’s Cost Position (ACP), Once we have the ACP - the costs are then plugged into MDEPs. The link to the PPBE process is the ACP. MDEPs 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Cost Analysis Link to Acquisition Milestones/Titles For Weapon/Information Systems A B C IOC FOC Concept and Technology Development Decision Review System Development and Demonstration Interim Progress Review Production and Deployment FRP Decision Review IOT&E Operations and Support SHOW SLIDE 11: Cost Analysis Link to Acquisition This chart shows the Cost Analysis link to Acquisition Before every decision point we do a POE / CCA / CAB and update the ACP Could be years between decisions - so costs and other information is updated continuously CHECK ON LEARNING Q. What is Cost Analysis? A. The cumulative process of analyzing and estimating incremental and total resources required to support past, present, and future forces, unit systems, functions, and equipment. Q. When is Cost Analysis most appropriate? A. Cost Analysis is a continuous process. It is most appropriate as early in the PPBES as possible, with updates and modifications as appropriate. Q. What organization within the ASA(FM&C) has responsibility for oversight, review, and advice on matters pertaining to Cost Analysis? A. ODASA-CE. Q. Who is initially responsible for the cost analysis product that feeds into the PPBES process? A. Material System Proponent. Q. What tool transmits cost analysis information into the PPBES process? A. ACP. Q. Which office has ultimate responsibility for cost data with regard to a weapon system or information system? A. ASA(FM&C). Pre-Systems Acquisition Systems Acquisition (Engineering and Manufacturing Development, Demonstration, LRIP & Production) Sustainment POE/EA CCA ACP POE/EA CCA ACP POE/EA CCA ACP UPDATING UPDATING UPDATING PPBES 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Cost-Benefit Analysis 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 Alternatives under Consideration 3. Define Alternatives 2. Scope the problem/opportunity. Formulate Assumptions and Identify Constraints 1. Define the Problem/Opportunity Eight-step methodology represents a logical thought process However … although the process reflects a logical flow, it is not necessarily linear. Objective Assumptions Alternatives Selection Criteria Compare Recommendation Cost Estimates Benefits Estimate Test Sensitivity 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Cost Benefit Analysis and the MDMP CBA Process Military Decision-Making Process (MDMP) * 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 Alternatives under Consideration 3. Define Alternatives 2. Scope the problem/opportunity. Formulate Assumptions and Identify Constraints 1. Define the Problem/Opportunity Receive mission Analyze restated mission (includes assumptions and constraints) Develop COAs Analyze COAs Compare COAs Approve COA Issue implementing orders * As prescribed in ADRP 5-0. 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

FINANCIAL MANAGEMENT SCHOOL CBA Guide Book Cost Benefit Analysis Guide 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

FINANCIAL MANAGEMENT SCHOOL Resources (https://afm.us.army.mil/) (https://www.osmisweb2.army.mil/amcos/app/home.aspx) (https://www.aceit.com/Pages/Products/ProductPage.aspx?id=f638a6d8-60e9-414a-9970-7fed249b9d25) (https://cpp.army.mil/portal/page/portal/Cost_Performance_Portal/CKB_Main_Page) (https://chess.army.mil/ascp/commerce/index.jsp) 12/7/2018 FINANCIAL MANAGEMENT SCHOOL

Check On Learning Q. Who/what manage the Army’s cost analysis career field? Q. How many steps are there in a CBA? What cost analysis product leads to our MDEP? Q. For a weapon system, what cost analysis product does the Program Manager develop? True / False: MDEPs feed the PPBE process. Q. Who/what manage the Army’s cost analysis career field? Q. How many steps are there in a CBA? What cost analysis product leads to our MDEP? Q. For a weapon system, what cost analysis product does the Program Manager develop? True / False: MDEPs feed the PPBE process. 18

Terminal Learning Objective Action: Conditions: Standard: Identify the Cost Analysis Process. Given a summary sheet containing AR 1-1, AR 70-1, AR 11-18, DA Cost Analysis Manual, DoD Manual 5000.1, and DoD Manual 5000.2, and slides. With 80% accuracy: Identify & analyze each steps of the Cost Analysis Process. SHOW SLIDE 12: Terminal Learning Objective 2 Questions (know chart and who does what) 12/7/2018 FINANCIAL MANAGEMENT SCHOOL