Mr. Larry Cooper

1
Business Case Analysis
Mr. Larry Cooper DAU Lt Col Lee Plowden SAF/AQXA
2
Overview

• What is a Business Case Analysis (BCA)?
• Structure of a Business Case
• Business Case Example
• How to Market your Business Case
• Tools and Processes
• Summary

3
What Is A Business Case?

• Tool that supports planning and decision-making
• Answers questions such as which vendor to choose
  or when to implement
• Generally designed to find out the likely
  financial and other business consequences if we
  take this or that action (or decision)?

4
Structure of a Business CaseIntroduction
Overview

• Title Subtitle
• Identify the proposed action and general nature
  of the analysis
• Author
• Provide identityimproves credibility
• Date
• Show date(s) completed and submitted
• Subject
• Should be explicit describing what the case is
  about
• Purpose
• Must be known and understood by case developer
  and audience
• Executive Summary
• Carefully prepared and formatted describes case
  essentials
• Introduction
• Describes case setting and establishes reader
  expectations

5
Structure of a Business CaseAssumptions and
Methods

• Financial Metrics
• Decisions and plans should be based on specific
  measures
• Assumptions
• BCAs require certain assumptions for one or more
  reasons
• Prediction future financial results are based
  on factors that change over time business
  volume, prices, salaries, organizations cost
  structure, etc
• Simplification when it is impossible or
  impractical to obtain exact figures e.g. 100
  clerical workers, its difficult to factor each
  salary - average is used
• Clarification - whenever you cannot take it for
  granted that any other person would make the same
  assumption automatically
• Scope Boundaries
• Scope range of coverage encompassed by the case
• Boundaries provides rules for deciding which
  data belong in the case and which do not (e.g.
  time, geography/location, organization or
  function, technology, etc)

6
Structure of a Business CaseAssumptions and
Methods

• Scenario
• A story showing one way that events might unfold
• Built to find and make tangible every business
  impact we want to make (requires an abundance of
  assumptions)
• Cost Model
• Identifies cost items that belong in the case
• Assures everyone the database selection was
  unbiased and the scenarios are compared
• Benefits Rationale
• Provides a basis for bringing business objective
  contributions into the business case
• Data Sources Methods
• Identify specific data sources

7
Structure of a Business CaseBusiness Impacts

• Financial Model
• The centerpiece of the business case
• Can be simple as a pie charts or complex as
  investment flow sheets and tables graphs that
  show behavior of key variables, or relationships
  between them
• Investment Statement
• The heart of the financial model and the business
  case
• Shows cash inflows and outflows
• Analysis of Results
• Compare results to other case scenarios and apply
  them to management decisions
• Non Financial Results
• Record and make tangible
• Compare to financial impacts in non financial
  terms

8
Structure of a Business CaseSensitivity, Risks,
Contingencies

• Sensitivity Analysis
• Asks What happens if the assumptions change?
• Risk Analysis
• Addresses questions of how likely are financial
  results to achieve business case predictions
• Contingencies Dependencies
• Key to making the BCA predictions come about
• Reminds everyone that the case subject has
  business objectives reaching objectives requires
  contributions from different

9
Structure of a Business CaseConclusions and
Recommendations

• Conclusions
• State the case firmly supports reasoning with
  evidence from preceding sections
• All important decision criteria needed are
  presented and evaluated
• Place to point out surprising or unexpected
  results
• Recommendations
• Should be explicit and come at end of case report
• Bring closure to the case
• Remind audience the ball is in their court

10
Building a Business Case
1. Knowledge of Costs

• AF Total Ownership Cost
• Data System

Program Office
2. Develop Initiatives

• Economic Analysis -
• Investment/Savings
• NPV, Savings-Investment Ratio
• R-TOC Business Case
• Analysis (BCA) Template

MAJCOM
Corp AF
3. Implement Initiatives

• Cost Savings Modernization Initiatives
• MAJCOM Approved
• Corp AF Vetted
• He who invests, saves, reinvests
• (Waterfall)

11
AFTOC Product FY00 C-5 Comb Chart
1 Cost Driver
2 Cost Driver
11
12
High Cost/High Demand Drivers C-5 A/C Example
From AFTOC

• Examine Upper Right Quadrant for High Leverage
  Cost Reduction Opportunities
• Pursuing 3rd Dimension to correlate w/
  maintenance costs

Unit Price
1
2
3
4
7
6
5
8
9
10
Sales Quantity
13
Business Case Analysis
14
Historical AFTOC Data Pull
15
The Comb Chart
16
Weapon System Baseline
17
Initiative Summary
18
Data Input Screen
19
Sample RAPIDS Chart
20
CSMI-NAME OF INITIATIAVE
BACKGROUND
Initiative (replaces, avoids, upgrades,
maintains, increases, decreases, etc --- three
line description of the initiative and why it is
needed.)
ADJUSTMENT
Fixes ( funds, increases, provides, offsets etc.
This will be a two line description of the
funding adjustment. Normally MAJCOMs will have
one chart for the plus-up and one chart for the
saving offset. Offset minuses)
FUNDING (M)
02A2I450AN
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007
CURRENT PROGRAM
6.1 2.5 7.3 0.0 0.0 0.0
ADJUSTMENT
43.5 12.4 -5.2 4.4 0.0 0.0
49.6 14.9 2.1 4.4 0.0 0.0
REVISED PGM TOTAL
PROCUREMENT
MANPOWER
FY02 FY03 FY04 FY05 FY06 FY07
FY02 FY03 FY04 FY05 FY06 FY07
OFFICER
0 0 0 0 0 0
Kit Buys
3 0 0 0 0 0
Kit Installs
0 3 0 0 0 0
ENLISTED
0 0 0 0 0 0


CIVILIAN
0 0 0 0 0 0

IMPACTS
CINC IPL (yes or no) DPG (yes or no)
APPG (yes or no) MAJCOM Ranking 2
(AC2ISRC) - Failure to complete puts.. at risk -
Full 800M in life cycle costs saved (or
avoided) replaces MIL SPEC with COTS, per SECDEF
direction - Increased mission readiness and CINC
support mission aircraft not used as substitute
for lack of simulators, mission planning,
database build, software development and
maintenance - Eliminates multiple configurations
increases acft availability and standardizes
capability keeps 20 of fleet from becoming
logistically unsupportable - Fixes the mixed
fleet operational/supportability concerns .. -
Leads to increased sensor, communications, and
battle management capability for CINCs (max of 9
lines)
20
21
Tools ProcessesGeneral R-TOC Process
Establish R-TOC Culture
Team with Warfighter Other Stakeholders
Include Performance Measure
Identify and Analyze Cost Drivers
Establish R-TOC Baseline
Set Goal
Measure Progress
AFTOC Data Warehouse
Define Strategies Cost Reduction Initiatives
Plan Implement
Evaluate Prioritize
22
Tools Processes AFTOC
Single Data Repository Combines Numerous AF
Legacy Sources

• Historical Costs From Actual Obligations and
  Outlays - All Appropriations
• Provide Routine, Timely Visibility Into Costs
• All Major Weapon Systems to Include Commodities

Munitions
Supply
Military Personnel
Accounting
Budget
AFTOC Data Warehouse
Mods
Inventory
Depot
Flying Hours
Personnel
Fuel
A TOOL TO IMPLEMENT R-TOC Quicken for the Air
Force
23
Now You Have A Good Business Case What Are Your
Funding Vehicles?

• Service Process
• AF Warfighting Commands
• Supplemental Sources
• Warfighter Rapid Acquisition Process (WRAP)
• Business Initiative Council (BIC)
• Advanced Concept Tech Demonstration (ACTD)
• Reduction in Total Ownership Cost (RTOC)
• Program Budget Decision (PBD)
• Investment Programs (Aging A/C, CIP, PRAM)
• Fall Out End of Year
• - Just in Case

24
How to Market Your Business Case?

• Savings vs. Avoidance ( In a Budgetary
  Environment)
• Know Your Audience (AF Corp Structure)
• Have to Sell to Your Audience
• RD Investment vs. OM Savings
• Assessment of Military Utility or Value
• Cross Plot and Prioritize
• Show a Strategy to Keep the Savings
• Waterfall Charts
• Show Specific Recommendations
• Drive to Closure

25
Summary

• A Good Business Case
• Balance of Cost vs. Utility or Warfighter Value
• Articulate Impact of Action vs. Inaction
• Market to Your Audience
• Bring it to Closure The Ball is in Their Court

Remember the Golden Rule!
26
Contact Information

• Air Force RTOC www.safaq.rtoc.hq.af.mil
• Army RTOC www.saalt.army.mil/armytoc/
• Navy RTOC www.ar.navy.mil/index.cfm
• Air Force AFTOC https//aftoc.hill.af.mil
• IDA RTOC http//rtoc.ida.org
• Program Management Community of Practice
  www.pmcop.dau.mil/pmcop/