As of now, January 2017, what is the difference between CBA, cost-benefit analysis, and BCA, business case analysis, and how in the absence of clear guidance can the appropriate format be selected?
First let me lay out the guidenance:
10 U.S.C §2337. Life-Cycle Management and Product Support paragraph b(2) lists nine statutory responsibilities of the PSM, stating that "a product support manager for a major weapon system shall; which contain the following two:
1. conduct appropriate cost analyses to validate the product support strategy, including cost-benefit analyses as outlined in Office of Management and Budget Circular A–94;
2. prior to each change in the product support strategy or every five years, whichever occurs first, revalidate any business-case analysis performed in support of the product support strategy
So the statute states the PSM will conduct analyses to support/validate the products support strategy decision, and as part of the analyses, include the information outlined in OMB Circular A-94.
OMB A-94 states that a Benefit-cost analysis is recommended as the technique to use in a formal economic analysis Cost-effectiveness analysis, and furthermore highlights that a “program is cost-effective if, on the basis of life cycle cost analysis of competing alternatives, it is determined to have the lowest costs expressed in present value terms for a given amount of benefits”. So that suffices for the quantitative/financial aspects of the product support decision. However the product support decision is a “best value” decision, not a “least cost” decision.
DOD Instruction 5000.02 guidance highlights that the Program Manager will attach relevant assumptions, constraints, and analyses used to develop the product support strategy to the LCSP. The Defense Logistics Agency will participate in supply support related business case analyses by developing and providing data for ACAT I, II, and III programs. PSMs will revalidate analyses based on changes to the assumptions, constraints, and operating environment, or every 5 years, whichever occurs first. To aid further, the Deputy Assistant Secretary of Defense for Logistics and Materiel Readiness released a guidebook highlighting the basic topics to include in a Product Support Business Case Analysis.
BCA Guidebook highlights that a Product Support BCA provides a best value analysis, considering not only cost, but also other quantifiable and non-quantifiable factors supporting the product support strategy implementation and related investment decisions. This can include, but is not limited to, performance, producibility, reliability, maintainability, and supportability enhancements. In outcome based product support strategies, it is important and frequently necessary to make up-front investments in Reliability and Maintainability (R&M) improvements and proactive obsolescence/DMSMS mitigation that result in short-term increases in system costs to generate the requisite LCC savings later. To provide this justification, it is critical that the process, scope, and objectives of the BCA be clearly understood and communicated. A BCA should be developed in an unbiased manner, without prejudice, and not constructed to justify a preordained decision.
Question Title: Business Case Analysis vs. Cost-Benefit Analysis
Question: As of now, January 2017, what is the difference between CBA, cost-benefit analysis, and BCA, business case analysis, and how in the absence of clear guidance can the appropriate format be selected?
Question Background: The previous answer to this question, at https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=17&cgiQuestionID=103242, calls a business-case analysis an "advocacy document," but as early as the DoD Product Support BCA guide (2011) and, later, the DoD PBL Guidebook (2016), in DoD, BCA is no longer being presented as an advocacy document (in the sense of the "business case," the evidence in favor of a particular decision) but as a decision-support document, weighing the evidence in favor of several alternatives in order to arrive at a decision, in a process analogous to cost-benefit analysis as defined in Army guidance. When a customer organization asks what sort of analysis is required for their situation, unless it is clearly product support and/or PBL, Performance-Based Logistics, or a situation mandated by a particular Service to require a specific type and format of analysis, there seems no clear guidance.
----------------------------------------------------------------------------------------------------------------------------The Product Support BCA does not replace the judgment of a decision maker. Rather, it provides an analytic, standardized, and objective foundation for credible decisions. The Product Support BCA should be a comprehensive, fair, and accurate comparison when evaluating multiple alternatives. It should take into account broad Department wide impacts and context throughout the analysis. The PSM prepares a Product Support BCA for major product support decisions, especially those that result in new or changed resource requirements. The Product Support BCA helps leadership with significant investment and strategic decisions across all applications of Product Support. For example, Product Support BCAs may support decisions on whether or not to transform business operations, develop a web-based training curriculum, develop solutions to any of the Integrated Product Support Elements (IPS Elements), or retire an asset
PBL Guidebook is not a replacement or update to the BCA guidebook. It simply states in evaluating support strategies, to include PBL strategies, analyses must be conducted to support the decision.
So the guidance, while not completely identifiable at first glance, begins with a statute pointing to both an OMB Circular and additional analyses, which accordingly is to be used in any formal economic analysis of government programs or projects. The DOD instruction expands the definition to include assumptions, constraints and the operating environment, but also narrows the applicability to “product support decisions”. DASD L&MR, provided a guidance in the form of a guidebook to provide the basic framework to consider, once again for “product support decisions”. However all guidance allows the PM and PSM to tailor the BCA to address each of the criteria necessary to make the required decision. In each case, the PM and Milestone Decision Authority for the program have significant latitude in deciding upon the need decision criteria and supporting analyses.
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