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FEDERAL
SECTOR REPORT
October 2003
IN THIS ISSUE
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
Home Page
(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 ...
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VMM Broadens
Alternatives
Analysis
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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.
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Steps for
Alternatives Analysis
Includes a VMM
Framework
Which May Be
Augmented
By Other
Analytic Tools
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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!
Management
Consultant
P2C2 Group, Inc.
kendrick@p2c2group.com
(301) 942-7985
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Heavy Politics
as
Thomas Jefferson
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