Paul Gvoth EBA-Norfolk, VA November 18, 2009 Hampton Roads Area INCOSE/SCEA Decision Analysis Conference Economic Benefits Analysis The “Other-Side” of

Paul GvothEBA-Norfolk, VA

November 18, 2009

Hampton Roads Area INCOSE/SCEA Decision Analysis Conference

Economic Benefits AnalysisThe “Other-Side” of Cost

This document is confidential and is intended solely for the use and information of the client to whom it is addressed.

Economic & Business Analysis - NorfolkPre-Decisional Analysis and Data

2

Economic & Business Analysis - NorfolkBenefits Analysis Brief 11.18.09 HRA SCEA/INCOSE

Agenda

Introduction

Similarities/Differences in Benefits Analysis Approach vs. Cost Analysis

Tiered Approach

Example

References

Pre-Decisional Analysis and Data

3


Introduction

Why this is important?

Acquisition Requirements– Nunn-McCurdy (15% , 25%, ‘82)– Clinger-Cohen (ITMRA –’96, CIO)

GAO Audits and Tracked Recommendations (IG reporting to Congress)

Internal Competition for Resources (POM and FYDP, POPS)

Justification to External Entities

Decision Analysis – Selection of Preferred Alternative among all Viable Alternatives (AoA)

Integral part of an overall Economic Analysis (EA), ROI


4


Agenda

Introduction


Tiered Approach

Example

References


5


Cost Analysis and Benefits Analysis Share Some Technical Points

Cost Analysis– Analogy– Parametric– Engineering Build-Up– Expert Opinion– Extrapolation from Actual– Cost Element Structure (CES)

Benefits Analysis– Analogy– Parametric– Engineering Build-Up– Expert Opinion– Extrapolation from Actual– Benefits Elements Structure (BEM)

Both analyses sensitive to up-front important analytical decisions about allocations and application of economic concepts (NPV, ROI, BE)

Benefits Element Structure

• R&D and T&E• Military Personnel• Operations and

Maintenance• Procurement• Construction


6


However, there are important differences…

Cost Analysis– Well recognized published sources of cost

information– Risk is better understood (CSPT)– Common Accepted Terms- of-Reference

Across Field– Less Reliance on Expert Opinion– Certification for Analysts– Navy Center for Cost Analysis (NCCA)– Cost Analysis Improvement Group (CAIG)

Benefits Analysis– Analogies for new programs do not exist

and little published benefits data– Parameters are often unknown– Terms-of-Reference– Heavy use of Expert Opinion– Risk not well defined– No organized Benefits Analysis

Community– Quality of Benefits Analysis dependent

upon client environment– Less scrutiny then costs but high impact

on Decision Metrics


7


Agenda

Introduction


Tiered Approach

Example

References


8


Benefits Analysis Methodology - Four Steps:

Identify the functional capabilities of the Preferred Alternative (PA) and the Status Quo (SQ).

Develop the benefits model by allocating benefits to the four tiers of the framework described below.

Estimate the monetary value of the quantitative benefits by combining the LCCE, cost savings, and operational efficiencies. This will yield an ROI, NPV, and Payback Period calculations.

Address the improved operational capabilities resulting from the preferred alternative’s implementation within the context of risk.

Produce LCCEDevelop Benefits

FrameworkEstimate Benefits

Evaluate Risks


9


Benefits are Classified According to a 4-tier Approach*

Tier 0 consists of monetary cost savings determined by subtracting the costs associated with the PA from the current cost to maintain the SQ.

Tier 1 includes mission critical operational efficiencies directly related to the drawdown of inventory in terms of cost avoidances.

Tier 2 includes achievable operational efficiencies subordinate to the efficiencies received in Tier 1, but which still provide cost avoidances to the Marine Corps.

Tier 3 consists of qualitative benefits associated with the implementation of the Preferred Alternative.

Cost avoidances account for the bulk of GCSS benefits and is the focus today

*Based on Guidance from OSD PAE: Methodology captures inherent subjectivity and relative risk. Cost savings increase incrementally and cumulatively from “initial outlay” benefits to the inclusion “must have” benefits to the inclusion of “nice to have” benefits.

Cost S

avings/Avo

idance


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Benefits Analysis

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Means of Measure:Qualitative Description

Qualitative Benefits

Tier 3

Improved Capabilities•Supply Management•Capacity and Production•Maintenance Management

Tier 1 Tier 2

Operational Drivers:•Inventory Carrying Costs•Demand Planning/Forecasting

Mission Critical Operational Efficiencies: Costs Avoided

Achievable Operational Efficiencies: Costs avoided

Means of Measure:•Discounted Payback•Net Present Value•Return on Investment

Fin

anci

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nal

ysis


Operational Drivers:•Procurement Savings•Military Manpower Reduction

Benefits Analysis

Qu

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Tier 3


Qu

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Tier 3


Tier 1 Tier 2





Fin

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Tier 1 Tier 2





Fin

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Agenda

Introduction


Tiered Approach

Example

References


12


GCSS-MC EA Up-Front Summary

Preliminary ROI calculations demonstrate that sufficient Operational Efficiencies are achievable in GCSS-MC to generate a positive ROI for Block I, and its increments, providing support to proceed with program development

GCSS-MC business value resulting from the investment in new system capabilities is expressed as Operational Efficiencies that can be evaluated using USMC Logistics Chain Management (LCM) Balanced Scorecard Metrics and Joint Staff LCM Metrics

Reconciled NCCA LCCE amounts will be included in future ROI analyses

Benefits Analysis and LCCE will be finalized prior to the MS C decision

Analyzed all that we could gather data on, but not as much as we wanted


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Global Combat Support System (GCSS) Marine Corps (MC) Benefits Analysis – Purpose:

Review Preliminary Financial Results of GCSS-MC Economic Benefits Analysis relative to the Marine Corp’s investment in the capabilities set out in the Capabilities Production Document (CPD)

Discuss GCSS-MC Economic Benefits resulting from program investment in Logistics Chain Management (LCM) Capabilities

Review Economic Metrics expressed as monetized business value returning to the USMC from GCSS-MC program investment


14

Economic & Business Analysis - NorfolkBenefits Analysis Brief 11.18.09 HRA SCEA/INCOSE Pre-Decisional Analysis and Da

ta

Data Sources, Tools, Applied Analysis

Collected Marine Corps data from:

USMC LOGCOM – Albany,

GA, USMC HQ I&L, DC, and from

USMC Maintenance and Supply Records.

Applied business analytics tools such as:

Expert Choice (AHP),

SPSS,

Excel

…to collect capability attribute weights, calculate averages, and graphically display data.

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Economic Analysis Products

Performance Improvement Metrics Table (PIMT) Effort (Briefed April 2009)– Identified the functional/operational capabilities of the GCSS-MC/LCM Block 1 Alternative and

the SQ sourced from the Capabilities Production Document (CPD)– Developed metrics that are linked to each operational capability

Economic Viability to Support IRB Certification (August/September 2009)– Develop the benefits model by extracting benefits to the benefits analysis framework– Allocate benefits into the four tier break-out of Tier-0, Tier-1, Tier-2, Tier-3 – Estimate the monetary value of the quantitative benefits by combining the Program Office LCCE

(PLCCE), cost savings, metrics results, and operational efficiencies– Calculate the NPV, ROI, and Payback Period calculations using PLCCE data

Milestone C (Through January 2010)– Update the Benefits Analysis, NPV, ROI, and Payback Period calculations with the NCCA-

reconciled LCCE– Achieve OSD PA&E review and approval


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Economic Analysis Process

Establish Ground Rules & Assumptions

Establish Economic Analysis Approach

Cost Analysis Requirements

Description (CARD)

Economic Analysis

Development Plan (EADP)

Conduct Benefits Analysis

Develop Status Quo LCCE

Develop Preferred Alternative LCCE

Block 1 Economic Analysis Process

NCCA Reconciliation

Risk & Sensitivity Analysis

Benefits Analysis

Economic Analysis Document

Outputs

PA LCCE

SQ LCCE

Return on Investment (ROI)

Payback

Net Present Value (NPV)

Data Collection

Update

and Finalize

Cost

and

Benefit Analyses

Develop Performance Improvement Metrics Table

Current


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Capabilities Linked to Joint and USMC LCM Balanced Score Card Metrics

Capabilities Produced by Investment in GCSS-MC– Investment in GCSS-MC produces capabilities in the following Logistics Chain Management (LCM)

Areas:

• Request Management (22.5%)

• Supply (30.6%)

• Maintenance (30%)

• Finance (5.2 %)

• System Administration (11.%)

New and improved capabilities create performance improvements or operational efficiencies

Performance of capabilities are evaluated using Joint and USMC Balanced Score Card Metrics– GCSS-MC tracks and balances capability performance relative to the scorecard metrics, creating

Operational Efficiencies – The amount of Monetized Economic Benefit derived from the implementation of GCSS-MC Block 1 is

directly related to the degree of Operational Efficiencies generated by the new or improved capability


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Capabilities Linked to Balanced Score Card

GCSS-MC Capabilities2

Impact(Weight)

Joint Chiefs of Staff Joint Integrated Capabilities (JIC) Joint Attributes1

Sustainability Responsiveness Survivability Flexibility Economy Attainability

USMC Balanced Scorecard Attributes (Weight)

Readiness(25%)

Responsiveness(20%)

Reliability(20%)

Flexibility(15%)

Expenses(10%)

Assets(10%)

Request ManagementThe system provides the capability to create, update, validate, approve and manage customer requests for logistics support including supply, service, maintenance, and returns or combinations of these requests.

22.5% X X X X XSupplyThe system provides the capability to plan and execute the functions necessary for supply operations. This includes functions related to capacity, operations and fulfillment as it pertains to inventory, warehousing, and asset management.

30.6% X X X X X XMaintenanceThe system provides the capability to plan and execute the functions necessary for maintenance operations. This includes functions to conduct capacity and production management of maintenance resources and to plan and control maintenance execution.

30% X XFinanceThe system provides the capability to conduct financial accounting for assets and inventory. This includes functions to capture costs and other financial data related to inventory and asset values required for Clean Audit compliance.

5.2% XSystem AdministrationThe system provides the capability to support the on-going system setup, configuration, and maintenance required for the GCSS-MC/LCM BLOCK 1 enterprise and deployed environments.

11.7% XTotal 100.0%

1 The “Simplicity” Joint Attribute has been omitted because it does not map to a specific USMC Balanced Scorecard Attribute

2 GCSS-MC Capability Production Document (CPD) Draft October

2008 Pre-Decisional Analysis and Data

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Performance Improvement Metrics Table (PIMT)

– “The Performance Improvements Metrics Table must reflect metrics which quantify the performance improvements that will result from the modernization as justification for the investment.” – DITPR-DON Tier 1-3* Certification Reporting Requirements

– Shows the performance metrics associated with operational efficiencies (OE) gained by implementing the new system increment

Purely operational improvements – no costs or monetized benefits are associated with the PIMT

Compares operationally the differences between the legacy and future system

Provides the expected time for the improvement

*DoD and DoN Business System Investment Tiers based on total development costs. Tier 1-3 are greater than $1million.


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Performance Improvement Metrics Table

TierDescription of Performance

ImprovementsGCSS-MC Capability

Affected

Current System Performance(As-is)

Post GCSS-MCPerformance

(To-Be)

Performance Improvement

1

Supply response time The speed at which the logistics chain provides products to supported units.

Supply Request ManagementMaintenance

Order to Ship Time (OST) measures this process. Requests take 24 to 48 hours to process

GCSS-MC will reduce OST to approximately 2 hours

Decrease the response time by 96%

Operational Availability Captures how often equipment is mission ready.

Supply Maintenance

Mean Logistics Delay Time (MLDT) factors into this metric. It is not currently measured

GCSS-MC will be able to monitor and reduce MLDT

GCSS-MC can potentially reduce MLDT by 50%

Inventory ReductionInventory carrying requirements, order timing, and costs

Request ManagementSupplyMaintenance

Replenishment action initiated whenever on-hand quantity plus the dues, less back orders, is equal to or less than the reorder point. Inflates Inventory

GCSS-MC will use advanced supply chain planning engine at retail level and Oracle min/max planning tool

Potential decrease in inventory by 25%

Demand Planning and Forecasting The process of determining the type, location and quantity of products needed to support the warfighter.

Supply

Inventory Carrying Costs can be 20% or higher of inventory value and are directly linked to inventory size which may be larger than needed due to poor visibility, obsolescence, and replenishment business rules

Inventory Carrying Costs will be reduced in direct proportion to the reduction in inventory size

Potential 25% reduction in inventory X 20% Inventory Carrying Costs = 5% overall reduction in Inventory Carrying Costs

Maintenance, Repair & Overhaul (MRO)Process, support, and downtime for repairable parts operations

• Maintenance

Long order-to-ship times, incomplete parts kits, erroneous orders, and stock-outs all delay maintenance throughput and increase equipment downtime

Increase maintenance throughput, maintain personnel utilization, reduce unneeded parts in pipeline or in storage

Potential 15% Cost Reduction (unneeded Parts)


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TierDescription of Performance

ImprovementsGCSS-MC Capability

Affected



(To-Be)


1

Inventory Cycle Time The total time required to complete the process of receiving and issuing inventory.

SupplyMaintenance

Inventory Cycle Time is not optimal because USMC systems cannot directly access vendors, track orders, or efficiently process requests

2 hour order processing time vs 48 hour processing time, order tracking, asset visibility, direct reach to supplier

Potential 25% reduction in inventory, 5% reduction in inventory carrying costs, and items in the pipeline

Order Management Addresses the ability to streamline and automate the entire inventory management process from order capture to transportation and shipment.

Request Management

Order Management is measured through fill rates, which are currently inconsistent, sometimes incomplete, and untraceable

Traceable, measurable fill rates that increase supply chain velocity and cash-to-cash transactions

Potential 25% reduction in inventory, 5% reduction in inventory carrying costs, and items in the pipeline

Resource ManagementEnsures the timely management and processing of orders

Request ManagementFlexibility

The timeliness with which orders are processed is not optimal (24-48 hrs) because there are multiple points of access increasing the probability of errors in completion of customer orders

Orders are processed in a timely manner (2 hrs) through a single point of access, which allows for the accurate completion of customer orders

Reduction in erroneous orders, double orders, an order cycle time

2

Realignment of Maintenance PersonnelEncompasses the decrease in staff or FTE support and the increase in employee utility and productivity

System AdministrationFTE’s are being used for reconciliation of StovedPiped systems

FTE’s released from system reconciliation duties and realigned to their job resulting in an increase in operational availability

Potential one time 10% realignment of Marine Corps Support FTEs

Procurement ImprovementIncludes the purchase of equipment, materials, software or hardware to support the logistics process

SupplyFinance

Four legacy systems, many ‘ungoverned’ systems, material handling equipment

Reduction in system and material handling equipment costs as a result of GCSS-MC implementation

Potential additional 5% Reduction in Material Handling Equipment Cost, and Systems Costs


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TierDescription of the

Performance ImprovementsGCSS-MC Capability

Affected



(To-Be)


3

Shipping Status Refers to tracking down the status of an item


System does not provide an estimated time. Requires phone call to supplier in order to obtain information

GCSS-MC will provide status to end customer/requisition from intermediate supply activities

Increases confidence in the USMC managed logistics chain

Improved lifecycle management Provides Total Asset Visibility


There are no enterprise level metrics available to capture this information

Improved enterprise level visibility of assets throughout enterprise including warranty status, and serial number tracking of secondary repairables and end items

Enables and Improves USMC logistics chain management and decision making

Logistics plans Creating, saving and reutilizing logistics plans .

SupplyMaintenance

There are currently no enterprise level ability to capture an archive metrics available to capture this information

GCSS-MC will include a process for archiving these documents into a database

Enables and Improves USMC logistics chain management and decision making

Interface with Total Force Structure Management System (TFSMS) Streamlines table of allowance and equipment item update/management daily.

SupplyMaintenance

Currently no interface with TFSMS

Streamlined and timely table of allowance and equipment (T/O and T/E) item update/management through daily interface with TFSMS

Enables and Improves USMC force structure management and decision making

Budgeting Ensures the system provides updated figures.

FinanceInformation is retained locally and manually computed in Excel spreadsheet

Automated processes will handle most functions

Improved visibility of maintenance and supply costs

RequirementsUSMC is subject to numerous DOD wide requirements which GCSS-MC will satisfy

•System Administration•Finance

USMC currently adapting to compliance requirements within current system constraints

Enhances USMC Compliancewith:

• JFIMP• SFIS• IUID

Improves processes Increases USMC credibility with internal and external resource reporting requirements


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Tier Additional Tier 3 Metrics

3

Ability to report more accurate and timely operational availability of all equipment/weapon systems

Establishes automation of maintenance history including major sub-component (SL-4) configuration of end items

Ability to task organize units with their associated equipment, supplies, and personnel within the GCSS-MC.Marines, Sailors, contractors, and government civilians

Ability to create and submit service requests for logistics support in forward operating areas through mobile field service (MFS) and centrally manage requests through fulfillment


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($300.000)

($200.000)

($100.000)

$0.000

$100.000

$200.000

$300.000

$400.000

$500.000

$600.000

$700.000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

GCSS-MCBlock I Cumulative Net Benefits vs Yearly Program Investment

Yearly Program Investment

Cumulative Net Benefits

Then-Year $ (Discounted)

EA Results - Block I ROI calculated using the Program’s LCCE

Benefits Based on Total Block I (Release 1.1 + Release 1.2)– PV of Benefits: $1,219.07M– PV of Costs: $603.87M– Benefit Cost Ratio: 2.02– ROI: 3.40

Break Even at 2014


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Top Ten Benefits

$53M IT Direct Cost Savings

$273.4M Inventory Reduction

$797.4M Inventory Carrying Cost (ICC) Reduction

$191.6M Repair Part Reduction

$196.9M MLDT Reduction (Asset Value Recapture & Availability)

Expanded User Base - GCSS will expand user base to approximately 40 percent of 57,000 potential users

Improved readiness

Enables compliance

Expanded Capability

USMC Integration with Joint Chiefs of Staff Joint Integrated Capabilities (JIC) Joint Attributes for Logistics Chain Management (LCM)


26


EA Results - Release 1.1 ROI for Release 1.1 is a sub-set discount analysis of Block I

Benefits Analysis for Release 1.1– PV of Benefits: $896.69M– PV of Costs: $309.51M– Benefit Cost Ratio 2.90– ROI 5.32

($200.000)

($100.000)

$0.000

$100.000

$200.000

$300.000

$400.000

$500.000

$600.000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

GCSS-MCRelease 1.1 Cumulative Net Benefits vs Yearly Program Investment



Break Even at 2013



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($140.000)

($120.000)

($100.000)

($80.000)

($60.000)

($40.000)

($20.000)

$0.000

$20.000

$40.000

$60.000

$80.000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

GCSS-MCRelease 1.2 Cumulative Net Benefits vs Yearly Program

Investment



Break Even at 2019


EA Results - Release 1.2

ROI for Release 1.2 is a sub-set discount analysis of Block I

Benefits Analysis for Release 1.2– PV of Benefits: $317.50M– PV of Costs: $293.94M– Benefit Cost Ratio 1.08– ROI 1.20


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Direct Cost Savings

$53M IT Cost Savings– After Release 1.2 FOC (FY13), the four legacy systems will be phased out– Approximately $4.5 Million per year after legacy system phase-out – Assume legacy costs will not increase annually due to long term maintainability issues– Researching potential SQ investment and increased sustainment costs due to SW and HW

obsolescence– Initial cost savings are typically negative


29


Inventory Reduction

$273.4M Inventory Reduction– USMC Class IX inventory estimated at $1.2 Billion– Block I one-time inventory reduction (IR) draw-down estimated between 15% and 25%*– Used 20% figure in PIMT analysis– One time drawdown of inventory for this analysis is spread across the first 5 years after FOC– Inventory is shown to be 90% within the Enterprise, and 10% Deployed – Release 1.1 IR estimate for the ROI is $189.83 Million; Release 1.2 IR Estimate $53.54

Million

*Based on proprietary BAH industry studies and USMC I&L Business Case


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Class IX Secondary Repairables Inventory by Location (wholesale & retail)*

Percent Distribution

Location Quantity Cost Quantity Dollar Value

LOGCOM 106,129.30 $702,408,282.91 58.95% 57.72%

Deployed 17,810.80 $119,144,713.19 9.89% 9.79%

Camp Pendleton 14,012.14 $103,607,173.43 7.78% 8.51%

Camp Lejeune 11,546.97 $84,890,792.23 6.41% 6.98%

Okinawa Hawaii 13,811.82 $83,823,358.27 7.67% 6.89%

MFR 7,562.94 $65,063,257.12 4.20% 5.35%

BIC 4,596.96 $25,544,323.91 2.55% 2.10%

29 Palms 2,384.44 $17,215,849.77 1.32% 1.41%

Quantico 2,113.86 $13,695,195.53 1.17% 1.13%

ILC Cycle 68.77 $1,468,656.88 0.04% 0.12%

Total 180,038.00 $1,216,861,603.25 100.00% 100.00%

Inventory Reduction

*Based on proprietary BAH industry studies and USMC I&L Business Case


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Inventory Reduction by Release


Reduction in Class IX Inventory

Inventory Benefit Distribution

100% 78% 22%

FOC 2012 FOC 2013

Block 1 Release 1.1 Release 1.2

Inventory Dollar Value$1,216.9 Million $949.2 Million $267.7 Million

20% Inventory Reduction$243.4 Million $189.8 Million $53.5 Million

Numbers may not add due to rounding

Annual Benefit Over Each of First 5 Years After FOC $48.7 Million $38.00 Million $10.7 Million

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Inventory Carrying Costs Reduction

$797.4M Inventory Carrying Cost (ICC) Reduction– Inventory Carrying Cost (ICC) factor is 25% of inventory reduction value. ICC is a recurring

cost avoidance that will be used to write down the future investment– Release 1.1 ICC estimate $47.6M; Release 1.2 ICC Estimate $13.39M– ICC avoidance will occur every year after FOC


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Inventory Carrying Costs Reduction


Reduction of Class IX Inventory Carrying Costs Linked to Reduction of Class IX Inventory

Inventory Carrying Cost Reduction Benefit

Distribution100% 78% 22%

FOC 2012 FOC 2013

Block 1 Release 1.1 Release 1.2

20% Inventory Reduction$243.4 Million $189.8 Million $53.5 Million

25% Inventory Carrying Costs Avoidance From FOC Forward Based on Inventory Reduction $60.8 $47.5 $13.4

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Repair Part Reduction

$191.6M Repair Part Reduction– Analyzed SOE maintenance transactions for the period FY 2007 thru April 2009– 37,480 unique consumable NSNs from maintenance transactions representing 335,648

appearances in 87,500 Equipment Repair Orders (ERO)– 626,677 parts were required, but 948,020 were ordered valued at approximately $551.7

Million – Difference of 321,343 “over-ordered” parts for the period of analysis is valued at

approximately $36.5 Million – Annualized adjustment for the period of analysis indicates that approximately 128,537

extra parts were ordered, valued at $14.6 Million per year, every year– Annual Benefit for Release 1.1 is $11.4M and Release 1.2 is $3.22M– Cost avoidance will occur every year after FOC


35


Repair Part Reduction


Consumables and Repair Parts NSNs FY 2007 Through April 3, 2009

NSN Count

EROS Parts Required

Parts Ordered

Value of Parts Ordered

Excess ofRequired

Parts Ordered

Value of Excess Parts

Ordered

37,478 626,677 948,020 $551.66 Million 321,343 $36.54 Million

Yearly Benefit $14.62 Million

Benefit Proration to Each Release

Block I (100%) Release 1.1 (78%) Release 1.2 (22%)

Yearly Benefit $14.62 Million $11.4 Million $3.2 Million

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MLDT Reduction

$196.9M MLDT Reduction (Asset Value Recapture & Availability)– For our period of analysis, (FY 07 thru April 3 FY 09), $23.1B dollars of USMC assets

were sitting idle due to a total Maintenance Down Time (MDT) of 3.8M days, representing 87,427 Equipment Repair Orders (ERO)

– The average MDT per ERO is approximately 41 days, which is comprised of Labor Hours, Average Logistics Delay Time (ALDT), and other MDT attributes

– ALDT is approximately 21 days– Modest 10% reduction in ALDT to 19 days results in a one-time benefit of $175.31M in

Asset Value and Equipment Availability– Benefit allocated to Release 1.1 is $136.74, and to Release 1.2 is $38.57– Prorated across five years starting at FOC


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MLDT Reduction


Value of USMC Asset-Availability and Use Loss Due to Maintenance Down Time as Related to Average Logistics Response Time (LRT)

Data Element2.5 FiscalYear’s Data

10% Reduction in Average LRT

Total Number of EROs Analyzed in 2.5 Fiscal Years

FY 2007 thru 1/2 FY 2009 (April 3, 2009) 87,427

All numbers are rounded

EROs Total $ Asset Value in 2.5 Fiscal Years$23,105.125 Million

MDT Total Days3.794 Million

Average asset value in MDT per Day$6,090

Average LRT in Days per EROX 21.14 19

Average Total Value of Assets Unavailable to the USMC for Each ERO due to Average Logistics Response Time (LRT) = $128,730 $115,857

Average Annualized Loss per Fiscal Year/2.5 = $51,492 $46,343

Fiscal Year Annualized Adjusted Average Number ofEROs X 34,047 34,047 Average Estimated Total Asset Value Use-Loss to the USMC for a Fiscal Year that’s Related to Avg. LRT $1,753.143 Million $1,577.829 Million

Release: 1.1 (78%) 1.2 (22%) Block I (100%)

Reduction in Asset Value Loss ($35.1 Million per year benefit each of first 5 years after FOC) $27.4 Million $7.7 Million $35.1 Million

Total One-Time Benefit (annualized delta) $136.7 Million $38.6 Million $175.3 Million

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User Base Expansion

Expanded user base should increase supply chain velocity through greater user access, increased order accuracy and increased transaction speed.

Current legacy system user base is approximately 13,000

GCSS will potentially expand user base to approximately 56,965

There is no reduction in FTEs resulting from implementation of GCSS-MC.


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Readiness and Compliance

Readiness– Improved visibility of assets throughout enterprise including warranty status, and serial

number tracking of secondary repairables and end items– Inventory posture and readiness is visible throughout enterprise allowing for improved

resource allocation and optimal stockage at wholesale, retail and consumer level– Establishes automation of maintenance history including major sub-component (SL-4)

configuration of end items

Compliance– Enables USMC to comply with Joint Financial Management Improvement Program

requirements– Enables USMC to comply with SFIS requirements– Enables USMC to comply with IUID requirements


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Legacy System Risks

Cost Avoidance– Annual increased legacy systems costs due to long-term maintainability issues– Legacy systems are currently grandfathered and do not have to comply with SFIS and IUID

due to the imminent replacement of the legacy systems– If GCSS-MC is not implemented, support for the legacy systems in their current

configuration would become untenable. USMC would need to commission a revision to modernize the code and functionality. Due to the revision, the legacy systems would then be forced to comply with Standard Financial Information Structure (SFIS) and Unique Identification (IUID).

– Need to develop costs for SFIS and IUID compliance


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Additional Capability

Expanded Capability– Ability to report more accurate and timely operational availability of all equipment/weapon

systems– Ability to create, save, and reutilize logistics plans and bills of material for TEEP events and

real world operations– Ability to task organize units with their associated equipment, supplies, and personnel within

the GCSS-MC– Streamlined and timely table of allowance and equipment (T/O and T/E) item

update/management through daily interface with TFSMS– Streamlined budgeting, improved visibility of maintenance costs, ability to establish financial

responsibility at any echelon


42

Economic & Business Analysis - Norfolk42

Balance Scorecard Attributes(% = Attribute Weight)

USMC LogisticsBalancedScorecard

USMC LogisticsBalancedScorecard

Assets

Asset Utilization

(Internal Efficiency)

Reliability

Quality Order Fulfillment

(Internal Effectiveness)

Readiness

Operational Availability

(External Effectiveness)

Flexibility

Logistics Chain Capacity

(Internal Effectiveness)

Expenses

Total Logistics Chain Expense

(Internal Efficiency)

Responsiveness

Total Logistics Chain Cycle Time

(External Effectiveness)

Logistics Measures of EffectivenessLogistics Measures of EffectivenessLogistics Measures of EffectivenessC

ust

om

erP

roce

s sR

esou

rces

25%

10%

20%

20%

15%

10%

43


43

Attribute: Readiness The Tier 1 performance metric for Readiness is Operational Availability, measured through

lower-tier metrics with the following formula and illustrated in the figure below:

Operational Availability =

___________Uptime__________

Uptime + TTR + SRT + DART

Availab ilitydue to

M aintenance(TTR )

Availab ilitydue toSupply(SR T)

Availab ilitydue to

D istribution and Adm inD elay T im e (D AR T)

O perationalAva ilab ility

44


44

Attribute: Responsiveness The Tier 1 performance metric for Responsiveness is Total Fulfillment Cycle Time, measured

through lower-tier metrics with the following formula and illustrated in the figure below:

Total Fulfillment Cycle Time =

Request Cycle Time + Order Fulfillment Cycle Time

R equest C yc le T im e

Order M angem ent SectionCycle T im e

M aintenance C ycle T im e(M C T)

Purchase C ycle T im e(backorders)

O ST (w )

Purchase C ycle T im e(non-backorders)

O rder and Shipping T im eO ST(r)

Order Entry Com plete toProduct Ready to Ship

Transportation T im e

O rder Fulfillm ent C ycle T im e(C W T)

Total Fulfillm ent Cycle Tim e

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Attribute: Reliability

The Tier 1 performance metric for Reliability is Quality Order Fulfillment, measured through lower-tier metrics with the following formula and illustrated in the figure below:

Quality Order Fulfillment =

[# Repair Orders X %QOF (Maintenance)] + [# Requisitions X %QOF (Supply)]

(# Repair Orders) + (# Requisitions)

O rder deliveredcom ple te

m aintenance

R epairedby agreedupon date

Quality order fufi llm entm aintenance/D istribution

O rder deliveredcom ple te

supply

O rder deliveredby agreed

updon date

Quality order fulfillm entSupply/D istribution

Q uality O rder Fulfillm ent

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Attribute: Flexibility

Flexibility is measured with the Tier 2 metric Fulfillment Capacity, which is the highest-level metric used to measure logistics chain capacity. Fulfillment capacity is measured through lower-tier metrics through the following equation and as illustrated in the figure below:

Fulfillment Capacity =

Upside Make Capacity + Upside Warehouse Capacity + Upside Purchase Capacity + Upside Transportation Capacity

Upside M akeCapacity

U pside W arehouseSpace C apacity

U pside PersonnelC apacity

Upside W arehouseCapacity

Upside P urchaseCapacity

Upside TransportationCapacity

Fulfillm ent Capacity

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Attribute: Expense

The Tier 1 performance metric for Expense is Total Logistics Expense, measured through lower-tier metrics with the following formula and illustrated in the figure below:

Total Logistics Expense =

Total Maintenance Expense + Total Supply Expense + Total Distribution Expense

TotalM aintenance

Expense

TotalSupply

Expense

TotalT ransportation

Expense

T ota l Logis tic sExpense

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Attribute: Asset Utilization The Tier 1 performance metric for Asset Utilization is Asset Utilization, measured through

lower-tier metrics with the following formula and illustrated in the figure below:

Asset Utilization =

(Maintenance Asset Utilization, Supply Asset Utilization, Transportation Asset Utilization)

M aintenancePersonnelU tilization

M aintenanceSpace

U tilization

M aintenanceEquipm entU tilization

M aintenanceAsset

U tilization

SupplyPersonnelM anning

SupplyPersonnel

T im e

SupplyPersonnelU tilization

W arehouseSpace

U tilization

InventoryAsset

U tilization

SupplyAsset

U tilization

TransportationPersonnelU tilization

TransportationEquipm entU tilization

TransportationAsset

U tilization

Asset U tilization

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Way Forward

Expanded Risk Analysis

Life Cycle Return on Investment Analysis

Optimized Benefits Relative to Cost

Post Investment Analysis


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Agenda

Introduction


Tiered Approach

Example

References


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References DFAS ROI Calculator; www.dfas.mil/technology/pal/ssps/slc/roinpvcomputation.xls

Department of the Army - Economic Analysis Manual; www.asafm.army.mil/pubs/cdfs/manual/economic.pdf

DoD Automated Information Systems Economic Analysis Guide – 1995; http://www.ncca.navy.mil/resources/DoD_AIS_EA_Guide_1995_DRAFT_RCW.pdf

Analysis of Alternatives (AoA) Handbook: Practical Guide to Analyses of Alternatives, July 2008, Office of Aerospace Studies, Air Force Materiel Command (AFMC) OAS/A9,1655 1st Street SE, Kirtland AFB, NM 87117-5522; http://www.oas.kirtland.af.mil/

Benchmarking Cost Savings & Cost Avoidance - NASPO BENCHMARKING WORKGROUP Research Brief September 2007; http://www.naspo.org/old_site/whitepapers/documents/BenchmarkingCostSavingsandCostAvoidance.pdf

There are many more resources, but these are a good start.


http://www.dfas.mil/technology/pal/ssps/slc/roinpvcomputation.xls





http://www.asafm.army.mil/pubs/cdfs/manual/economic.pdf





http://www.ncca.navy.mil/resources/DoD_AIS_EA_Guide_1995_DRAFT_RCW.pdf

http://www.oas.kirtland.af.mil/

http://www.naspo.org/old_site/whitepapers/documents/BenchmarkingCostSavingsandCostAvoidance.pdf

http://www.naspo.org/old_site/whitepapers/documents/BenchmarkingCostSavingsandCostAvoidance.pdf

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Paul Gvoth Associate

Booz | Allen | Hamilton Suite 400 5800 Lake Wright Drive Norfolk, VA 23502 Mobile (757) 646-4762 [email protected]

Paul Gvoth Associate

Booz | Allen | Hamilton Suite 400 5800 Lake Wright Drive Norfolk, VA 23502 Mobile (757) 646-4762 [email protected]


Documents

Paul Gvoth EBA-Norfolk, VA November 18, 2009 Hampton Roads Area INCOSE/SCEA Decision Analysis Conference Economic Benefits Analysis The “Other-Side” of