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FEDERAL SECTOR REPORT

October 2003

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Alternatives Analysis for Investments in Federal Initiatives
Links of the Month: Resources for Alternatives Analysis
Consulting Support for Capital Planning and Investment Control
Consulting Support
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(c) 2003 by the P2C2 Group, Inc.

ANALYZING ALTERNATIVES FOR FEDERAL CAPITAL INVESTMENTS

Decision Trees are aptly named, because alternatives analysis should lead to a careful exploration of many choices and sub-choices (branches and sub-branches). For major federal projects, evaluating viable options is a serious undertaking, because hastily picking the wrong branch without careful analysis can literally leave agencies and contractors "out on a limb."
This issue of our newsletter focuses on Alternatives Analysis. You will find tips about how agencies can select and justify their investment choices. This is essential for getting OMB budget approval, but it's also good management to pick approaches and projects that achieve results, leverage money, and serve citizens. For our readers who are contactors and grantees, the tips are also useful ... in terms of how to design projects and write proposals that align more successfully with federal accountability for budget and performance.
The Office of Management and Budget (OMB) expects federal agencies to evaluate alternatives for major investments. The results of these analyses are summarized in budget justifications, such as Section I.F of the OMB Exhibit 300 Business Case. This year and in the future, OMB wants more rigorous justifications of the alternative selected for a major investment ... as emphasized by the emerging focus on Value Measuring Methodology (VMM), which goes well beyond simple projections of Return on Investment (ROI).
The Buzz about VMM
VMM is the next new thing from folks at Harvard and other business thinkers. It's pretty exciting, actually, because it blows away your staid old ROI spreadsheet with a much broader framework for Alternatives Analysis and Cost Benefits Analysis. VMM addresses value and risks as well as traditional costs/benefits. Its scope is broad enough to jog everyone's thinking ... and possibly shake some new, more innovative alternatives out of our collective heads. For example, VMM pursues a values analysis structure with five significantly different factors:

  • Direct Customer: Benefits to users or groups associated with receiving a service through an electronic channel. For example, "convenient access to reservations at National Parks."
  • Social: Benefits to society as a whole, such as "increased voluntary compliance with environmental regulations."
  • Government Operations and Infrastructure: Improvements in government business processes and increased capability to carry out future initiatives. For example, faster cycle time for processing veteran's benefits, or improved digital imagine and content management systems.
  • Strategic/Political: Contributions to achieving strategic goals, priorities, and mandates, such as protecting airlines and passengers from terrorists
  • Government Financial: Financial benefits to sponsoring and other agencies, such as reduced cost of correcting errors.
VMM is becoming an analytic framework of choice for e-Government and will be increasingly important as government functions go electronic. Its origins in the Federal Sector can be traced to 2001, when the Social Security Administration (SSA) and General Services Administration (GSA) began formulating a methodology for assessing the value of electronic services. The result was a first-generation VMM methodology for federal requirements, and it was applied to:

  • "Check Your Benefits" and "Deferred Application Process" (SSA), and
  • e-Authentication and e-Travel (GSA).
Don't Throw Out the Old Tools Yet

While VMM may be hotter than a chili pepper, we're not ready to throw out all of our traditional tools yet. For example SWOT Analysis is great for brainstorming, and Decision Tree Analysis provides another perspective when comparing alternatives. What's more, VMM tends to provide a high-level tool for senior management, but quite a few subordinate decisions can benefit from the nitty-gritty scrutiny of traditional tools. So let's start from the beginning and look at Alternatives Analysis from an alternative worldview, which happens to be Dutch ...
VMM Broadens
Alternatives Analysis

The Dimensions of Alternatives Analysis

Basic Steps for Alternatives Analysis. Four Dutch specialists boil down the alternatives analysis process to four steps in their paper titled Towards a Comprehensive Support Methodology for Decisions on IT-Investments. We've added our own comments about how to integrate their four steps with the federal Capital Planning and Investment Control (CPIC) process:
OBJECTIVE SETTING: Problems or opportunities spark the need to redefine objectives. Other decision criteria by which the alternatives will be assessed are added, which in our case would include agency and OMB funding criteria. The result of this stage is a defined objective with a set of decision criteria, effects, and constraints. Typical constraints for federal initiatives include requirements for security and privacy, as well as compatibility with Enterprise Architecture and budget limitations. A program's legislated mission, strategy, and performance goals will be a good place to begin.
ALTERNATIVE GENERATION: Alternatives are possible solutions for dealing with a problem or opportunity that is significant to the enterprise's goals and objectives. Developing alternatives is a two-step process: (1) searching for options, including those which at first may seem "out of the box," and then (2) identifying the best alternatives that merit formal assessment. Alternatives can be identified in many different ways: by doing market research (OMB encourages industry Requests for Information, known as RFIs), conducting brainstorm sessions, reviewing successful solutions in other organizations, etc. This is the stage where SWOT Analysis and Decision Trees may be helpful. In addition, an agency should introduce a decision framework based on VMM, which will continue to be used in the Assessment and Choice phases.
ASSESSMENT: Estimates of effect values (outcomes) are derived from the alternatives. Next, the alternatives are appraised on the basis of the decision criteria set. In some cases, the assessment criteria may be revised because of the availability of new information during the assessment stage or difficulties in assessing the alternatives by the initial set of criteria. Within the VMM framework, a combination of assessment procedures may be appropriate:

  • Quantitative analysis of costs, cost reductions (or increases), and risks
  • Structured evaluations of qualitative factors ... such as value of the alternative to customers and other stakeholders
  • Case studies of alternatives, as implemented in other enterprises, where it is possible to review actual results ... and the interaction of qualitative and quantitative factors
  • In-house collaboration about the do-ability of implementing each alternative within the specific enterprise
  • Independent assessment of the alternatives by a qualified third-party.
CHOICE: After various alternatives have been generated and assessed, a choice can be made on the basis of the results of the assessment. This can be the start of a new cycle, in which the chosen alternative(s) are further refined and assessed. Eventually, in the last cycle, a final choice must be made.
Tools for Alternatives Identification and Analysis
Many tools are available for Alternatives Analysis, ranging from generalized decision support techniques to very specific procedures. We highlight three approaches in the newsletter: SWOT Analysis, Decision Trees, and Value Measuring Methodology.
SWOT Analysis. This method is useful in the alternatives generation phase, when seeking out plausible options. SWOT addresses an organization's Strengths, Weaknesses, Opportunities and Threats (SWOT). It is a good tool for brainstorming, and helps participants to "think outside of the box." Some sort of brainstorming is extremely important because the best alternatives are not always obvious. For instance:

  • A project may initially focus on improving wide area network communications for three financial processing centers at scattered geographic locations ... when the best option may be consolidation into a single location.
  • An information system is proposed to help federal employees respond more quickly to citizens who want to know about the status of their application for government benefits ... when the best solution may be to enable citizens to track their own information online through a Web interface (thereby boosting citizen service and reducing agency labor costs).
One example of SWOT software is available (with instruction manual) at http://www.psi-press.co.uk/swot/swot_man.htm, and it can be downloaded for free on a trial basis to give you an idea of SWOT.
Decision Trees. When identifying and assessing alternatives, Decision Tree Analysis can be helpful. It needs to be rooted in the federal agency's legislated mission and strategic plan, and these provide the foundation for defining the overarching objectives for the investment. Usually, there are numerous alternatives (branches), which should be identified and then pruned back to a few which are most promising. While doing nothing may not be a viable alternative, this branch should also be included to provide a baseline against which to compare the most promising alternatives. Each alternative's outcomes (costs, value, and risks) must be evaluated and compared to the other alternatives. An introductory explanation of Decision Tree Analysis is available at
http://www.mindtools.com/dectree.html. A related link for a specific product (PrecisionTree, Palisade Products) is at http://www.palisade.com/html/ptree.html.

Value Measuring Methodology. VMM provides the structure, tools, and techniques for analysis and comparison of value (benefits), cost and risk. It is more robust than traditional cost-benefit analysis because the decision-making structure is oriented toward producing results that support the agency's mission and performance goals ... rather than simply trying to carry out the "same old, same old" business processes cheaply. It also recognizes risk as an important factor in selecting an alternative, which in some cases results in justification for selecting an alternative which is not the least costly.
With OMB's support, VMM is evolving into a valuable enterprise management tool, and it will play an important role in the overall lifecycle process of Capital Planning and Investment Control, which General Accounting Office originally laid out for information technology (IT) in May 2000. GAO's original draft includes the frequently-used CPIC diagram, which breaks the IT capital investment process into three phases: Select, Control, and Evaluate. Because of the growing importance of VMM, agencies will want to use software tools such as SWOT, decision trees, and broader decision-support systems within the broader framework of VMM and the CPIC paradigm.
One of the decision support software tools cited in the VMM literature is Expert Choice, and more information is available at http://www.expertchoice.com/.
Other Views of Alternatives Analysis
Capital Planning and Investment Control is just one way of thinking about alternatives analysis. Some other views related include System Development and Life Cycle Management ... and Acquisition Management. For example see the FAA document listed in the Links of the Month.
Disclaimer about Software Tools
The software examples that we use in this newsletter are intended to give "for examples" and are not an endorsement or recommendation to buy. We are highly skeptical of the notion that "one size fits all," and alternative software solutions are worthy of consideration. And, if you know of a super software solution for the Federal Sector, send us e-mail. We'd like to hear from you.

LINKS OF THE MONTH

Following are references that point to additional information about topics covered in this newsletter.

CONSULTING SUPPORT FOR CAPITAL PLANNING AND INVESTMENT CONTROL

The P2C2 Group provides consulting support and leadership in IT capital planning and investment control (CPIC). This includes Office of Management and Budget (OMB) Exhibit 53s and 300s, ITIPS, presentations for agency budget offices, the overall Circular A-11 budget process, and:

  • E-Government
  • Strategic planning
  • Lifecycle budgeting
  • Requirements definition and performance goals
  • Alternatives analysis
  • Risk assessment
  • Performance measurement
  • Cost benefit analysis and return on investment
  • Acquisition planning
  • Earned value management
  • Work breakdown structure, milestones and cost analysis
  • Enterprise architecture
  • Business process improvement
  • Information security and privacy
  • ITIPS Support
Call or e-mail if you would like more information about our consulting services.
Steps for Alternatives Analysis
Includes a VMM Framework
Which May Be Augmented
By Other Analytic Tools

HOME PAGE

Democracy is a noisy process, and sometimes I am in total amazement about all of the debating, fussing, and feuding that occurs in our nation's capital. Is everything going to hell?
In searching for a photo idea for the newsletter, I came across a long-ago high school picture depicting me as Thomas Jefferson in Sidney Kingsley's drama, The Patriots. There I was at age 17, dramatically embroiled in the bitter discord between Jefferson and Alexander Hamilton. Whew, what a fight!

So, the photo answered my question. Democracy has always been a loud and discordant process and, God help us, may the noise continue.

Peace and prosperity!

P2C2 Group, Inc.

kendrick@p2c2group.com
(301) 942-7985


Heavy Politics as
Thomas Jefferson



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