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Department of Defense (DoD) product support business case analyses (BCAs) compare alternative courses of action (COAs) for sustaining weapon systems and recommend ways to improve on current sustainment practice. This document explains how to apply standard Office of Management and Budget and DoD guidance on project evaluation to product support BCAs in a way that allows senior DoD decisionmakers to use net present value (NPV) as the dominant figure of merit for comparing COAs. It identifies a primary performance attribute and estimates the cost of ensuring that every COA meets a target level of performance for this attribute. This begins a process of estimating the annual cash flows for each COA relative to a baseline COA. The approach then elicits from subject matter experts (1) what sources of risk might delay or thwart each COA's efforts to achieve target performance and (2) how each source of risk affects each COA's efforts. It allows these efforts to differ across potential future states. Each future state yields a different set of annual cash flows based on (1) the cash flows associated with trouble-free implementation, including transition and implementation costs and savings, and (2) the effects of sources of risk that degrade implementation. The approach ultimately states the findings of a BCA in terms of dollar values of NPVs for COAs — figures that senior decisionmakers understand intuitively, because they use them routinely in decisions about defense resource management.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Assessing the NPV of a COA Element

  • Chapter Three

    Risk Drivers Relevant to COA Elements

  • Chapter Four

    Aggregating Information on Different Risk Drivers Relevant to a COA Element

  • Chapter Five

    Formal Elicitation of Information on Risk Associated with COA Elements

  • Chapter Six

    Integrating the Pieces to Characterize a COA

  • Chapter Seven

    Providing Support for Senior Decisionmakers

  • Appendix A

    Risk Workshop "Homework" Materials

  • Appendix B

    Risk Workshop Facilitation Protocol

The research described in this report was sponsored by Maj Gen Dwyer L. Dennis, executive officer of the Air Force Life Cycle Management Center, Fighter-Bomber Directorate, and conducted by the Resource Management Program within RAND Project AIR FORCE.

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