BUSINESS CASE ANALYSIS ……….. from the analysts’ perspective

1. BUSINESS CASE ANALYSIS………..from the analysts’ perspective Plan B is THE way to go because...

2. Overview • What is a BCA • Rules & Requirements • Common Command BCA Process/ Approaches • Generic approach to developing a BCA

3. Definition • Structured and systematic methodology for analyzing the alternatives involved in a business decision. • Can be tailored to fit particular circumstances and focuses on only the key issues and related impacts • Considers processes, resources, and feasible alternative courses of actions • Identifies processes and process improvements, and develops additional alternatives incorporating the process improvement

4. Business Case Analysis Business case analysis involves establishing rules and requirements so that best value decisions are derived consistently, results are documented, and a clear audit trail exists substantiating final decisions

5. Rules & Requirements • What are they? • Who sets them up? • How do I find out what they are? • Are they the same for all BCAs? Answers specifically different for each BCA Overall generic approach

6. Requirements • Standardized Process containing • Objective evaluation criteria that can be used to measure “good” versus “not so good” approaches • Structure to be used for developing analyses and presenting results • Analysis and documentation requirement

7. Current Command BCA Processes /Approaches • Affordable Readiness/CR&EI Process/Templates • NAVSUP/NAVICP LECP Process • Integrated Maintenance Concept (IMC) • Maintenance Trade Guidebook

8. Common Characteristics in Current Command BCA Processes • Establish criteria for success • Define costing structure(s) to be used for BCA studies • Require formal documentation in a standardized format • Provide standardized reporting templates treating items like discounting dollar streams, returns on investment, etc.

9. Screen/review initiatives & forward for Cost/Tech Review Verify available resources, review recommendations, and provide final proposal Submit electronic copies of initiatives Collate the submission and provide copies to the reviewers • Criteria for final analysis • ROI • NPV • Break Even Point • Technical Evaluation • Cost Evaluation Narrative Affordable Readiness Process RECOMMEND AWARD SUBMIT REVIEW EVALUATE AIR-4.2 Cost Analysis Assessment IPT/ PMA/ Competency AIR-3.6 Mar 29 O&M, N Board Mar 27 Apr 12-14 Eval Board Template Apr 26 TBD AIR-00 Mar 29 Technical Assessment to Eval Board Members Initiative Pool available for other submissions Cost Reduction Initiative Selection Process

10. Logistics Engineering Change Proposal Program • Key Players • NAVAIR, NAVSUP, CINCLANTFLT-N41, NAVSEA, CINCPACFLT-N4, OPNAV-N80, OPNAV-N88, OPNAV-N43,HQ USMC ADCS Aviation, SPAWAR Code 04, OPNAV-N41 • LECP • A Reliability or Maintainability related Engineering Change Proposal (ECP) for a NAVICP managed secondary item, sponsored and funded by NAVICP and designed to reduce support costs.

11. BOSS III Process Flow BOSS III Initiative Received at NAVICP Logistics and Engineering Assessment NO Meets ROI Notify Proposer Criteria of Results YES Have all Logistics NO & Engineering Elements Been Addressed? Is there any updated information affecting the ROI? YES YES NAVICP BOSS III Investment Board Review NO Approved? NO YES LECP Rejected HSC Configuration Change Control Board Fleet Review at SPARCOM YES YES Approved? Approved? LECP Approved NO NO

12. Recurring Cost Templates IMC Templates -- A Repeatable Process for BCAs Summary of Desired “Technical” Attributes Investment Requirements

13. IMC COST NEUTRALITY CRITERIA 24 January 2001 At its 18 January meeting, the IMC Review Board (IMCRB) adopted formal criteria on which to base future IMC Cost Neutrality decisions. The criteria involve having program applicants prepare two versions of the BCA; A ‘Theoretical’ BCA (ThBCA) and an ‘Expected’ BCA (ExBCA). Both BCAs are completed using the cost template structure and will not require significant additional time to complete. Their primary difference is that the ThBCA assumes that both the projected SDLM and anticipated IMC scenarios are developed under the assumption that they take place within an unconstrained budget environment. The ExBCA assumes that both the both projected SDLM and anticipated IMC scenarios take place within budget constraints. To successfully meet the Cost Neutrality threshold, a proposed IMC approach must pass three tests for Prototype Approval and eight tests for Implementation Approval. The three ThBCA tests must be met for either approval. For Implementation Approval all ExBCA tests must be passed. For Prototype Approval the ExBCA narrative discussion must only address how the program plans to overcome potential obstacles. The ThBCA must demonstrate that: 1) the proposed approach breaks even within ten years (e.g. the orange line on the Avoidance Chart must cross the axis, and remain above, the axis no more than ten years after the initiation of the first prototypes); 2) the out-year costs, at worst, all but breakeven on a year-to-year basis (e.g. the green line on the Avoidance Chart, as a minimum, skirts along just below and parallel to, the axis); and, 3) the proposed approach decreases aircraft Out-of-Service (OOS) time (the ‘Summary Chart OOS Time’ must support your case). The ExBCA must demonstrate that: 1) the proposed approach, as a minimum, is trending towards eventual breakeven (e.g. the orange line on the Avoidance Chart has a positive slope in the out-years); 2) the out-year costs, at worst, all but breakeven on a year-to-year basis (e.g. the green line on the Avoidance Chart, as a minimum, skirts along just below and parallel to, the axis); 3) the proposed approach decreases aircraft Out-of-Service (OOS) time (the ‘Summary Chart OOS Time’ must support the case); 4) the narrative successfully explains how the program is going to overcome the funding deviations shown on the ‘Funding Requirements Variances’ Chart; and, 5) the program has phased (and secured AIR 6.0 endorsement on) the transition plan so as to minimize impact on approved / proposed AIR-6.0 Depot O&M budgets (the red and green bars on the ‘Depot O&M’ chart have been minimized to level acceptable to AIR 6.0). Two files are attached to this e-mail. The Excel file contains the templates that are to be used in preparing your BCAs. The Word file contains detailed instructions on how to construct the case supporting IMC prototype approval or implementation approval on the templates and in the companion narrative.

14. Purpose To guide the development of comprehensive, consistent, and well documented cost estimates, comparing alternative maintenance concepts to assess Naval Aviation life cycle costs including acquisition ILS, and O&S. The Guidebook provides a consistent and repeatable process to be used both by industry and government analysts when assessing commercial versus organic repair sources. MAINTENANCE TRADE GUIDEBOOK PROCESS Scope The MTCG is intended for use in any maintenance trade cost analysis. Examples of applications include determining the cost impact of • Procedural Changes • Number of maintenance levels (organizational to intermediate to depot vs. organizational to depot) • Source of maintenance (intra-service, inter-service, or commercial) • Depth of repair • Turn-Around-Time (TAT) • Design Changes • Technology improvements • Reliability or maintainability engineering change • Built in test capability change

15. Maintenance Trade Estimating Approach Step 1 tasks inlcude: Identify present maintenance philosophy . Step 1: Determine system description and comparative system from Establish Maintenance system engineer. Trade Cost Study -- determine differences between the two systems / how to Baseline and properly adjust baseline. Comparative Ssytem(s) Determine present performance versus predicted reliability. Identify all cost elements under present concept including acquisition, ILS, O&S. Step 2 tasks include: Step 2: Identify changes impacting maintenance/ Identify Changes baseline. Impacting -- New technology. Maintenance/Baseline -- New maintenance philosophy. - 3-Level vs. 2-Level Organic. - Source of maintenance. - 2-Level Organic vs. Commercial. Identify all cost elements under the proposed change. -- Identify changes in each category. Step 3 tasks include: Step 3: Complete a comparative analysis Quantify changes, costs, on the baseline versus the and savings in each proposed change. category Quantify and defend any deviation from current system costs to those proposed. Document all processes and results.

16. Establish Scope & Baseline Requirements Identify & Describe Current Process Estimate As-Is-Cost Data Develop Alternative Courses of Action Estimate Phased Changes Estimate Investment & Implementation Changes Compare As-Is and To-Be Prepare Detailed &Audible Report

17. Establish Scope & Baseline Requirements for BCA Study • Understand Purpose of Effort • Identify existing BCA “Process” • Identify Key Players in process • Identify Success Criteria • Review all required documents • Read all instructions

18. Identify & Describe Current Process • Determine system/process description • Determine present performance • Determine current operation • Determine potential areas for change • Identify present maintenance philosophy • Identify key metrics like failure rates, turn around time, Re-test-OK and other factors that describe current process

19. Estimate As-Is Cost • Identify all cost elements under present concept including every phase required in the analysis • Identify those elements that will be impacted by proposed changes..these will become the baseline cost elements • Identify realistic future costs over a defined operational period given anticipate use of a system(normally 5-10 years) • Develop a clear, understandable, and traceable cost methodology • Use documented and verifiable data to describe current process • ensure data appropriately treated for inflation and future usage impacts • convert data to cost per usage hour or cost per unit

20. Develop Alternative Courses of Action • Determine high cost driver and potential high cost driver systems with significant improvement potential • Determine systems that represent significant cost drivers • Review reliability and maintenance cost change trends over time • Identify technology or repair process changes that could provide solutions to reliability or impending obsolescence problems • Assess key logistics cost driving issues such as false failure indications, premature failures after repair that impact current system(s) • Define a solution set(s) that Meets the Requirements for Equivalent Performance at Equivalent or Lower Cost…

21. Estimate Phased Changes • Identify conditions associated with alternative approach that would be impacted by implementation • Develop a schedule based upon executable goals and clear understanding of how a new solution would be implemented • Determine what is necessary to cause the as-is system of today to become the to-be system • Account for all system changes e.g., a change in hardware reliability may cause a change in technical publications, support equipment, and quantity of spares required. • Allow adequate time for change to occur

22. Estimate Investment & Implementation Costs • Rely heavily on results of previous step • Identify all costs associated with Implementation • Identify any Key changes that would result from recommended approach • Improved reliability, reduced/no “I” level organic requirement, reduction/elimination of false failures • Reduced turn around time, smaller spares inventory

23. Compare As-Is and To-Be • Develop out year initiative profile and use to quantify costs, cost avoidance's, and other “benefits” of proposed change • Clearly document an auditable track from current system costs to those associated with the proposed change in equipment, processes or labor source • Quantify cost differences in each cost element category used in the baseline • Time phasing for implementation must be based upon achievable and executable forecasts for both investment and resulting cost avoidance (Mod installation, spares demand..) • Compare over time costs of as-is, status quo, with costs of revised approach

24. Prepare Detailed & Audible Report • Clearly state status quo, improvements desired, changes required to cause improvements • Provide clear, understandable, and rational cost methodology for As-Is, To-Be Alternative(s), and Investment costs. Show data sources • Provide clear comprehensive executable schedule to go from status quo to alternative • Clearly define risks involved • Provide metrics that will indicate future compliance with success criteria • Make sure that the argument presented is supported • Support Cost Assumptions

25. Characteristics of “Good” BCAs • Technically feasible with significant payback expressed as equivalent or better performance at equivalent or lower cost • Executable given funding types needed for implementation • Documented as a cost business case analysis to show: • Clear identification of baseline “do nothing costs” • Reasonable/executable schedule and time phasing of costs • Clear, comprehensible methodology for defining cost avoidances or changes over time • Clear evidence that all assumptions are based on understanding of naval aviation maintenance issues • Clear, concise “what we are proposing to do” addressing: • What, how, when in readily understandable manner • basis for key technical assumptions clearly stated

26. Things to Avoid in Business Case Analyses • Common Problem Areas • No basis for estimates • Unrealistic implementation schedules • Limited understanding of potential cost changes associated with new approach including impact on other cost areas • Lack of knowledge of naval aviation logistics processes and requirements • Cautionary Statements • Given current and anticipated operations and maintenance budgets naval aviation CANNOT afford to chose alternative solutions that will increase costs • Proposals For alternative logistics support solutions largely succeed or fail based on quality of BCA -- innovative solutions do have a strong likelihood of being subject to audits

27. Likely Outcomes Without Formal BCA Approach