Functional Process Improvement Fundamentals Chapter 6: Process Design/Justification Department of Defense Topic(s): Government BPR, Reengineering / BPR

Chapter 6

Process Design/Justification

Please note: This chapter contains references to figures which are actually portions of the text itself. They do not link to any external graphics images.

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figure 6-1. Introduction to Process Design.

PROCESS DESIGN

Process design is the process of moving from an ASIS condition with respect to a functional process to a TOBE condition based on implementing a set of proposed improvement initiatives that have been justified by an economic analysis of alternative solutions or approaches.

The TO-BE model provides several advantages:

It functions as a strawman for discussion purposes

It provides a means of testing improvement assumptions ("Fly before you Buy")

It helps communicate the proposed slate of improvements

Once a set of improvements is implemented, it can easily be adjusted to become the new AS-IS condition for the improved functional process.

The final outcome of this phase is the development of the Functional Economic Analysis (FEA) decision package which proposes a slate of process improvements and economically justifies the investment in assets and resources needed to implement the improvement package. The FEA is supported with TOBE condition models. The FEA summarizes the results of the first phases of the FPI methodology.

The terminology associated with process design is as follows:

2figure 6-2. Terminology of Process Design.

PROBLEM

A PROBLEM is defined as a condition existing in a functional process (or a related information system) that violates a control, constraint, standard or requirement imposed on that process. The problem solution may lie in changing the control, adjusting inputs or resources, or modifying the process and/or its information systems.

OPPORTUNITY

An Opportunity is defined as a situation existing in a functional process where an innovation, new investment, or a change in the order or manner of doing something will increase the effectiveness and/or lower the costs of producing a product or service.

INITIATIVE

An INITIATIVE is a package of specifications which, when taken together, will solve a set of defined problems or exploit a set of defined opportunities. The expected results of implementing an initiative can be illustrated in a TOBE set of models.

ALTERNATIVE

An ALTERNATIVE is one of several means of implementing a specific initiative package. The initiative is concerned with the benefits that will be achieved upon implementation. The alternative holds the benefits constant for a given initiative and determines the least cost means of implementing that initiative.

Problems and opportunities are developed using the analysis phase steps, initiatives and alternatives are developed using the design phase steps.

Levels of Process Design

We described in Chapter 2 three levels of process design. It won't hurt to refresh your memory. The three levels are:

New Process Design

Process Redesign

Continuous Process Improvement

3figure 6-3. Three Levels of Process Design.

New Process Design. New process design is performed based on a change of mission, strategic or business plan. New process design would be required if a previously outsourced function was brought inhouse. The distinguishing characteristic of new process design is that there is no baseline from which to work. Benchmarking can be critical to the success of a new process design effort.

Process Redesign. Over the last few years, a body of knowledge and experience has been built up which we will use in redesigning DoD functional processes.

Process redesign is performed based on a significant change in output product and service requirements, a significant change in controls or constraints imposed on the functional process or a significant change in the technological platform supporting the functional process. A process redesign effort might also be undertaken following a radical change in financial resource availabilities (i.e. budget cuts or downsizing requirements).

Process redesign usually has significant impacts across organizational boundaries and generally has impacts or effects on external suppliers and customers. For this reason, the process improvement team (or Process Action Team [PAT]) must include members from all impacted organizations. Process redesign can have impacts on the organizational structures supporting the functional process. This means that process action teams must have the support and backing of senior leadership if improvement initiatives are to be given frank consideration by review and approval agencies. So, how do we redesign our processes?

As we have seen throughout this course, the first step is to identify your functional processes by going directly to your mission statement and strategic plan. Each functional process in your organization is based on these documents.

Next, you identify your customers and suppliers. Your customers determine what products and services your processes should provide. Your suppliers provide the raw materials and components your process will use in building your products and services.

Then you analyze all of the activities that take place in your process that are in the valuechain between what you get from your suppliers and what you deliver to your customers. Those activities that add value to your products and services are strengthened and optimized. Those activities that do not add value are reduced or eliminated. Later, we will take a more detailed look at value-chain analysis.

Process Improvement. Continuous process improvement embodies the philosophy that no matter how good something is, it can be made better. And if you don't make it better, someone else will, and then steal all of your customers.

Process improvement (Continuous Process Improvement [CPI]) actions are defined as those improvements which can be undertaken and supported by an organization with minimal impact on external suppliers, customers and other organizations within the functional area.

The focus of this level of process improvement is an emphasis on reducing the overhead associated with self-imposed controls and restrictions, eliminating nonvalue added activities, reducing nonvalue added costs, optimizing available resources with respect to process and activity output requirements, and other improvements that can be made within the authority level of the target organizational element.

Another aspect of process design is streamlining. Streamlining consists of using the process improvement methodology to make a series of quick enhancements that reduce non-value added costs and activities from a functional process. Streamlining requires no new investments and has minimal impact on other functional activities or information systems. Dramatic cost savings have been achieved with streamlining.

EXPLOITING IMPROVEMENT OPPORTUNITIES

In this section we will discuss how we take all of the information that we have generated from the previous steps in the methodology and turn it into real improvement possibilities. What this aspect of the FPI methodology does is help us go from possible improvements to probable improvements. We will:

Explain considerations for interpreting promising improvement opportunities in view of the organization's authority to change an activity, an activity's cost, time, and quality characteristics, mandated improvement targets, and resource constraints.

Explain various approaches to selecting alternatives to the current functional practices.

Discuss approaches to proofing the concept of a new business practice including benchmarking, simulation, and prototyping.

How does this section fit into the overall context of conducting a functional process improvement initiative?

The aim of FPI is to improve our functions' processes. The way we do that is by:

Understanding the business (Activity Analysis)

Understanding the costs of doing business (Activity-Based Costing)

Understanding the performance of the business (Performance Measures)

and,

Exploiting improvement opportunities!

SELECTING PROMISING IMPROVEMENT OPPORTUNITIES

Why Be Selective?

First, visualize a typical environment at this point in an initiative: large numbers of activities, large quantities of data, etc. What would be the drawbacks to improving all of the activities we have defined?

Too much change, too fast, can lead to:

Organizational chaos configuration, frustration, . . .

Causes organizational chaos ability to absorb the changes.

Difficulties in managing change

May not be possible to manage and control the changes.

Extended duration of the implementation phase

Defers benefits into future periods.

Increased implementation costs.

Extends the time (duration) required to implement the changes and hence defers paybacks into future periods.

Placing the functional process improvement initiative at risk

What are the benefits to a 'measured approach'?

Ease in implementing

Lower risk

Quick paybacks

GIVE ME:

The courage to change what must be changed

The serenity to accept what should not be changed

and, The wisdom to know one from the other

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A Measured Approach To Selecting Promising Opportunities

Includes:

Meaningful improvement objectives

Clear understanding of constraints

Focus On Meaningful Improvement Objectives

How should I go about selecting from among the alternatives?

State improvement objectives as clearly as possible considering:

- Time How soon must improvements be achieved?

- Cost Savings targets

- Quality Quality standards to be achieved or retained

(Note that objectives can be drawn from higher directives, budget trends, customers, employees, etc.)

Understand the limitations on what is achievable

How do I establish a balance among these improvement components?

Types of Considerations/Decision Parameters

Resources that are available

- Investment dollars

- Operating funds, etc.

- Manpower (numbers and skills)

- Time (or duration)

Authority (Note this deals with the Controls and Mechanisms of the IDEF0 ICOM).

- What can I control?

- What can I merely influence?

- What can I neither control nor influence?

Cultural/Management discipline

- Intangibles what can the organization manage, absorb?

Selecting Specific Activities Considerations

What criteria should I use in selecting activities?

Eliminate from consideration activities over which we have no control

Select from the remaining activities based on the activity's cost, time, and quality characteristics

1. General

Our Aim:

Enhance valueadded activities

Obliterate nonvalueadded activities

Eliminate, simplify, consolidate, integrate, automate

2. Analyze activities based on their contributions (versus objectives) by costs consumed, time consumed, and contribution to quality

figure 6-4. Activity Analysis Matrix.

     ACTIVITY       COSTS              TIME               QUALITY           

 A 2.7              HIGH               LOW                HIGH              

 A 3.3              LOW                LOW                LOW               

 A4.6               LOW                LOW                HIGH              

 A4.9               HIGH               HIGH               LOW               

 A5.3               LOW                LOW                NONE              

The ideal activity has LOW COSTS, SHORT TIME (DURATION), and HIGH QUALITY characteristics. (Note this approach is sometimes referred to as identifying which activities are high impact ones.)

What will be the results of this selection?

Result?

Fewer number of activities to be considered for improvement

High confidence that we have adequate authority to affect the improvements

Confidence that improvement of the selected activities will contribute to the improvement objectives

The result will be a drastic reduction in the number of activities we need to consider! Much higher confidence in our ability to successfully implement needed changes.

After promising opportunities are identified, more detailed analysis efforts can be focused on the activities that represent the opportunities

IDENTIFYING BETTER BUSINESS PRACTICES

How do I identify better business practices?

General Approaches:

Borrow proven practices from another organization

Innovate Develop better practices for ourselves

What can I expect from each of these approaches?

1. Borrowing proven business practices:

May lower risk since practice is already proven

- Practice is proven to work lowers risk

Can contribute to speedy implementation

- Other organization's experience may allow our organization to climb the learning curve quickly

May allow us to expand our improvement objectives

- Can be efficient avoids reinventing the wheel

- May be difficult to find an appropriate practice (refer to databases being built around the US and in DOD)

Might be difficult to find a perfect fit to our needs (For example, DoD unique functional activities)

- May be impossible to find a perfect fit to our organization's need, especially where DoD functional activity or process is unique.

Habitual borrowing from others can have adverse impacts on the organization

- Stifles innovation -- habitual borrowing might stifle our organization's innovativeness (good ideas begin at home)

Not invented here syndrome -- Borrowing may trigger internal resistance not invented here syndrome

2. Innovation Developing our own better business practices:

Places the solution in the hands of those who best understand the problems

Empowers our own workforce

Cultural consideration Is our organization an innovative one?

- Empowerment of individuals and respect for our organization's culture

- Methods for promoting innovation??

PROOFING THE CONCEPT

Is it really necessary to proof the concept?

Yes, we need to look at the effects the change will have in the area of risk reduction, impacts on the organization, estimated level of effort to implement the change in our organization, etc.

What are some effective ways to "prove the concept"?

Observe the practices in operation at another organization (Benchmarking)

Simulate the practices

Prototype the practices in our own organization

- "In line" prototype

- "Off line" prototype

Benchmarking:

Formal Definition:

Benchmarking is the continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders. (Dams T. Keams, Chief Executive Officer, Xerox Corporation.)

Working Definition:

Benchmarking is the search for industry best practices that lead to superior performance.

Observing the practice in another organization (applies only if we are borrowing another organization's practices)

May be accomplished quickly and inexpensively

- Might be least expensive and quickest way to proof no set up time and costs, etc.

Can be difficult getting reliable performance measurements

- Can be difficult to get reliable measures of the practice

- Impossible to duplicate our organization's environment

§ The environment of the 'other organization' is not likely to duplicate our own identically

- The impact of cultural differences is particularly hard

§ Our unique cultural differences may cause major differences upon implementation in our organization

§ The practice itself may not be identical to what we will implement

§ Hard to see what the 2d, 3d, 4th, etc., order effects would be if implemented in our organization.

This approach might be attractive if we must buy 'time and costs' and sacrifice our hopes for high levels of confidence.

Simulating the Practice:

Formal definition of simulation:

Acting out, looking like; imitation.

What are the pros and cons of simulating?

Cultural impacts may be missed as simulation techniques usually do not address those types of impacts well. (Note that simulation might accurately portray a highly automated assembly line, but may have trouble portraying accurately an intensively human-judgment focused practice.)

The simulation can facilitate "What If" analyses if computerized

- Does allow for rapid "what if" analyses of the practice (Very complex business practices can be "proofed"

- Simulation can handle a highly complex practice that is affected by a large number of variables, each of which interact in a random or probabilistic way. Simulation may be the only realistic way to 'observe' these types of practices.

Value is limited by limitations inherent in the art and science of "simulation" itself

- Very difficult to accurately simulate certain types of practices. Cost and time investments in simulation are generally dependent on the size and complexity of the practice to be observed.

- Simulation design requires special skills. Simulations must be built by individuals with special skills in simulations, including simulation program languages when a computerized simulation is to be used.

Prototyping the Practice:

Prototyping may be "in line" or "off line". An in-line prototype is an operational one where the current business practice, or some subset of it, is substituted with the proposed business practice. An off-line prototype is essentially an acting out of the new practice outside the actual operational arena. In that regard, an off-line prototype is somewhat similar to simulation and shares many of the same pros and cons.

What are the pros and cons of prototyping?

Prototyping -- Off-line

An "acting out" is similar to simulation

Allows for addressing cultural issues

Can be very expensive

Prototyping -- Inline

Benefits due to being an exact duplication

- An inline prototype probably gives us the best understanding (of all prototyping approaches), of how the proposed practice will perform in our organization as it most nearly duplicates the exact environment of our own organization.

Facilitates getting good performance measurements

- Hence we are able to get good estimates of probable costs, paybacks, 2d, 3d, 4th order effects, and gain good insights on exactly what it will require to fully implement the practice.

Enhances understanding and expansion of improvements

- There is some evidence that an inline prototype enhances an organization's ability to discover additional improvements that can be made, either to the practice being prototyped or other practices that are closely related to that one.

Can be very expensive

Possibly high risk since the business suffers immediately if the prototype fails

- Inserting an unproven practice in-line can be risky because if the practice proves faulty the business will suffer immediately.

4figure 6-5. Overview of FEA.

OVERVIEW OF FUNCTIONAL ECONOMIC ANALYSIS (FEA)

All of the techniques described up to this point have one major objective. That objective is to provide a basis for identifying and analyzing improvement opportunities. Once opportunities for improvement have been identified, it is necessary to find out which is the most cost effective alternative to recommend to management in the form of a business case or Functional Economic Analysis (FEA) Decision Package.

There are two steps to this process:

Perform an Economic Analysis (EA) to identify and cost out a set of improvement alternatives

Use the results of the economic analysis to develop the Functional Economic Analysis (FEA) decision package

5figure 6-6. Economic Analysis Considerations.

First we'll discuss the economic analysis (EA) and the six step EA process. Then we'll move on to the FEA, and discuss the purposes and benefits of an FEA and the eight sections that comprise a comprehensive FEA.

Economic Analysis

Economic analysis (EA) is a systematic approach to answering one of two questions:

What are the consequences of a decision already made?

Which of two or more alternative solutions should I choose?

Economic analysis is not the same as activitybased costing for these reasons:

ABC is concerned with past and present dollars, EA is concerned with future dollars.

ABC looks backward for its data (historical), EA looks forward

ABC is centered on cost issues, EA is centered on investment issues

ABC analysis provides baseline data that improves the value of an economic analysis.

Investment Risk

All decisions about the future involve risk. Therefore, all investment decisions made in the present, in order to obtain a future benefit, involve risk.

Some of these risks include:

Poorly defined problems or objectives

Assumptions (predictions) about the future may be wrong

Inappropriate alternative solutions

The purpose of economic analysis is to reduce exposure to risk when making investment decisions.

Relative Worth

Every investment decision involves a choice of alternatives, each of which may provide different benefits. For instance, if you have $1 ,000.00 to invest, should you put it in a Certificate of Deposit at 3.0%, or in a mutual fund where the historical return is about 12.0%.

In one case, there is a guaranteed low return with little risk, and in the other case, there is a potentially greater return but at a higher risk. Which is the better choice?

You really don't have enough data to make that decision. Economic analysis is a means of getting the necessary data to make the optimum decision.

There are many variables associated with investment decisions, most of which are centered on the future about which you know nothing. They include:

Assumptions about what will happen in the future

Constraints on what courses of action we may choose

The economic life of a resource, (e.g. technology)

Future costs, (e.g. operations, maintenance)

Future benefits, (e.g. relative worth of alternative investments)

Inflation rates

Interest rates

Environment, (e.g. political, economic, social, business)

Since you know nothing about the future, assumptions upon which you are willing to take risks must be made. It is only prudent to try to minimize risks while trying to maximize potential benefits.

Relationship to FEA

The FEA includes the results of the economic analysis used to select and justify an alternative solution to the defined problem. A key objective of the FEA is to narrate any noneconomic data that may have influenced the choice of alternative. Another key function is to defend the decision to not conduct a full scale economic analysis because the cost of analysis would be greater than any benefit associated with the choice of available alternatives.

Limitations of EA

Economic analysis is limited by the following factors:

Does not establish priority of objectives

Does not make decisions, only provides decisionsupport data

Does not completely quantify considerations of:

- Safety

- Health

- Politics

- Culture

- Prior experience

- Personal preference

Does not judge the quality of the data used in the analysis

Should not be used when the cost of the analysis will exceed the value differences in the range of acceptable alternative solutions. In this case, it is better to pick any alternative and go with it.

Net Present Value

You must become comfortable with and be able to use the concept of net present value to successfully conduct an economic analysis. Let's use a simple example to help us understand this concept.

Suppose you win $1 million in the state lottery. The lottery rules say that you can have $50,000 a year for twenty years, or $500,000 in a lump sum. Which should you choose? The current interest rate is 5%.

Before answering that question, do you see how non-economic factors could influence your decision? Suppose you are 80 years of age. Would that influence your decision?

This is the way to frame the question. What is the net present value of a stream of cash flow of $50,000 per year for 20 years assuming a discount (interest) rate of 5%?

The answer is $623,110.

So you can see that on purely economic terms, it would be better to take the payout over twenty years providing our assumption of the discount rate (interest rate) holds. What would happen if after you make your nonrevocable decision to accept a 20 year payout, the interest rate went to 20%? What if it dropped to 2%?

Net present value at 20% is $243,479. Net present value at 2% is $817,572.

So you can see that the prediction (assumption) about inflation is quite important in the analysis and drastically affects the decisionmaking process.

6figure 6-7. Six-Step Economic Analysis Process.

Now let's look at the six step process for conducting an economic analysis. Please note that each step is critically important.

An economic analysis consists of a series of six steps that have been proven useful in supporting investment decisions. An economic analysis provides data that will be used in a Functional Economic Analysis (FEA) decision package.

You will use much of the data gathered during the previous steps in the methodology in this sixstep process.

1. Statement of Objective

The first step is absolutely vital to the success of the analysis. The objective defines the problem to be solved and is usually associated with a process improvement objective. There are three rules for stating the objective:

The statement of objective must define a fixed standard of accomplishment that can be measured and evaluated

The statement of objective must not be biased towards a potential solution

The statement of objective must be technically neutral, apart from requirements to support standard architectures and configurations.

Here is an example of a statement of objective that manages to break all three rules:

Develop a Lotus spreadsheet tool to improve departmental budget development.

It should be recast as follows:

Based on fiscal 1992 budget performance data, improve the accuracy of departmental budgets by 50%, while reducing the time required to develop each departmental budget by 25%.

2. Assumptions and Constraints

In the real world, alternative choices are restricted by factors that are either internal or external to the immediate environment which will contain the problem's solution.

These restrictions are expressed in terms of assumptions and constraints.

Assumptions are factors internal to the environment that expand alternative choices for solving the stated problem.

Constraints are factors external to the environment that limit alternative choices for solving the stated problem.

Assumptions have many rules:

They are not facts (This is important)

They must be realistic (defensible)

They must be stated positively

They must affect the choice of alternative

They must be adjustable if necessary to open up more alternatives

Constraints take many forms:

Physical space limitations

Time deadlines

Funding availability and limits

Resource availability and skill levels

Institutional constraints (policy, architectures)

Constraints should be flexible enough to limit alternatives to a reasonable number.

Assumptions and constraints have the effect of setting bounds on the number of alternative solutions that can be proposed and analyzed. In practice, the analyst adjusts assumptions and constraints until three to five alternatives can be expressed that fall within the limits of the assumptions and constraints.

3. Alternatives

Alternatives are solutions that solve the stated problem while staying within the restrictions of the assumptions and constraints. We will find that there is always more than one way to deal with a problem.

Alternatives may vary in several ways:

Alternatives may have different economic lives

Alternatives may have different cost patterns:

- Alternative A may cost more initially, but have lower operating costs

- Alternative B may cost less initially, but have higher operating costs

Alternatives will offer different benefits (economic and noneconomic)

Alternatives will have different risk factors

There are always alternatives:

Status quo vs change

Make vs acquire

Buy, lease, rent, or borrow

Replace vs repair

Automation, partial automation, manual

Scalable vs fixed

4. Costs and Benefits

Each alternative is subjected to a cost/benefit study. You must understand and accept three axioms about costs and benefits:

Costs are inputs to the process and benefits are outputs of the process

A cost savings is NEVER a benefit!!!

Costs and benefits must be analyzed over the expected life of each alternative being considered

The most important costs to consider are startup and operational costs for each alternative.

A benefit is something of value produced by an alternative solution. It is the return on investment. All potential benefits must be quantified or they cannot be used in the analysis. Where possible, benefits should be expressed in terms of dollars.

5. Analysis

Once the costs for each alternative have been gathered, and the benefits of each alternative quantified, begin the analysis. There are only four ways to evaluate costs and benefits for each alternative:

COSTS BENEFITS RECOMMENDATION

Equal Unequal Most benefits

Unequal Equal Least cost

Unequal Unequal Highest benefit/cost ratio

Equal Equal Select on intangibles

We won't go into the methods for performing a cost/benefit analysis in this session. In almost all cases, you will use a computer program to perform the actual analysis. Your job is to gather the data for the program, and analyze the results obtained.

6. Sensitivity

The last step of the process uses financial formulas to assess the risk associated with the cost/benefit calculations for each of our alternatives. In short, a sensitivity analysis specifies under what conditions the ranking of the alternatives would change.

These conditions have to do with the fact that our assumptions are really guesses about the future. Remember the lottery example. We assumed a discount rate of 5% in making the decision. A sensitivity analysis would show at what point (discount rate) it would be better to choose the other alternative.

This concludes the discussion of economic analysis. The output of economic analysis is a recommendation for an alternative solution to the stated problem with risk factors and other documentation.

Now you take the information from the economic analysis and the data you will gather as part of the Functional Economic Analysis procedure that follows, and construct the FEA Decision Package.

We are basing this discussion entirely on DoD 8020.1M which provides the guidelines for writing the FEA.

Let's first define the purpose and function of the FEA.

The FEA is the principal document in a decision package that evaluates proposed actions to achieve some functional objective.

The FEA has three primary uses:

Evaluate a proposed course of action

Present the business case for approving and implementing a proposed improvement action

Reexamine the project at LifeCycle Management (LCM) milestones and defend changes from the original course of action

7figure 6-8. Functional Economic Analysis Uses.

Let's pause a moment and look at the relationships between activity modeling activitybased costing and functional economic analysis.

An Activity model and activitybased costing model are used to develop improvement opportunities and rate or rank the choice of alternative solutions to implement a set of improvements.

Additional cost/benefit analysis and risk analysis further refine this data. It is then assembled into a preliminary FEA. Once you add the Data Management Plan and Technical Management Plan, you have a complete and final FEA.

FEA Factors

The FEA is evaluated on several factors:

Value added improvements

Unit cost management

Investment risk assessment

Alignment with strategic goals and objectives

Conformance to standard architectures and configurations

During implementation, FEAs are also used to compare actual costs and realized benefits against planned or projected costs and benefits.

Risk Analysis

A key function of the FEA is to provide a vehicle for a welldeveloped analysis of critical risk factors associated with the planned improvement. Some of these risk factors are:

Technical proven vs unproven technology insertion

Funding availability throughout the project

Resources staffing and skill levels

Schedule performance risk of overruns

Commitment level of support by those directly affected

Management resistance to change and dislocations

Acceptance by customers, especially in feeforservice situations

Financial degree of certainty of inflation factors

As with economic analysis, the cost of performing an FEA should be commensurate with the potential benefits of the FEA. In general, you should assume one personmonth of effort in preparing an FEA for every million dollars of projected project cost.

FEA Preparation

There are two key steps in FEA preparation:

Establish baseline performance and cost

Develop at least two alternative proposals for improvements other than the status quo (baseline).

The baseline is established using activity and data modeling and activitybased costing techniques. Current baseline architectures for information system support round out the baseline presentation.

8figure 6-9. Comprehensive FEA.

Alternative solutions are derived during economic analysis and should be related to their impacts on the baseline. Information system impacts of alternative solutions are documented in the Data and Technical Plans attached to the FEA.

An FEA contains eight sections, each of which is outlined below and fully described in 8020.1M. DISA/CIM has also prepared a Functional Economic Analysis Guidebook which contains detailed guidance on FEA preparation. Information on this guidebook and other support documents related to business process improvement can be obtained by calling the hotline: 1800828BPIP.

1. Area Plan.

This section presents a short description of the functional planning activities and responsibilities and identifies Defense Management Review (DMR) fiscal adjustments in the functional area.

Areas include, but are not limited to, the following:

Finance

Health

Human Resources

Reserve Components

Materiel Resources

Procurement

Information Management

Communications

Command and Control

Intelligence

2. Activity Plan.

This section shows how process improvement within the functional activity supports the overall functional objectives in the strategic plan. This section details operational and financial objectives consistent with DMR directives.

3. Performance Measures.

This section presents functional activity performance measures and targets are shown for six and ten year horizons. This section also addresses significant impacts of improvement proposals on the functional area comprising the functional activity. In addition, this section identifies DMR savings targets for the functional activity.

4. Improvement Program.

This section presents the proposed functional activity improvement program that will achieve the targets set forth in sect 3. This section should present each of the alternatives being evaluated and shows how each alternative relates to the area and activity strategic plans presented in sections 1 and 2 of the FEA.

5. Economic Analysis.

This section presents the economic analysis for the proposed improvement program. Let's look at five requirements for this section of the FEA:

Functional Activity Baseline. This subsection shows the operating costs by fiscal year, based on current POM/budget information. It should show how these costs were derived. Often when developing an FEA, only preliminary data is available. This data should be updated as appropriate when additional data becomes available.

DMR Baseline. This subsection establishes the baseline for measuring the obtainment of DMR savings targets.

Current IT Baseline Funding. This subsection shows the funding available for the activity, based on the Budget Estimate Submission (BES) or President's budget. This section also details the costs associated with the proposed improvement program for each alternative.

Benefits. This subsection identifies the projected functional benefits by benefit category and fiscal year. Benefits should be described in functional terms with appropriate facts such as:

- Eliminate forms

- Streamline procedure

- Reduce unit costs

- Increase efficiency

- Improve customer response time

Benefit Measurement. This subsection provides data on how the benefit obtainment will be measured. For instance, is streamlining procedures an expected benefit; how will this be measured? Of course, the best measurement is in terms of time and resource savings.

6. Data Management and Information Systems Strategy.

This section provides a summary of the overall technical strategy to provide effective data administration and information systems support for the functional activity and how this strategy will support the functional improvement plan laid out in section 4 of the FEA. Elements that can be considered include:

Centralization vs. Decentralization

Data entry management

Data currency and accuracy

Security

The details supporting this section are included in the Data Management and Technical Management Plans.

7. Data and System Changes.

This section presents a summary of the technical changes to data and information systems support that will be needed to support the functional improvement program being presented in the FEA. The summary should include a discussion of each of the alternative solutions considered.

The analyst should keep in mind that sometimes a possible alternative for an improvement program may be ideal from a functional perspective, but when considered in light of the data and technical infrastructure already in place, a different alternative is more desirable.

8. Data and System Cost Analysis.

This section provides a detailed cost analysis of the data and information system changes for each alternative. The cost analysis is presented with sufficient detail required to support life-cycle management review of information system support.

The preliminary FEA may contain initial estimates of costs that can be refined once the Data and Technical Management Plans are developed. The cost data from these plans can be used to update the estimates in section 8 for the final FEA.

Activity -- Student Exercise (Chapter 6)

SUMMARY REVIEW QUESTIONS

1. List and define the three types of process design.

2. Define "TO-BE" as it relates to FPI.

3. What is benchmarking and how can it be used to (re)design a functional process?

4. What is prototyping?

5. What is simulation?

6. What are the six steps of an Economic Analysis?

7. What are the eight sections that make up a comprehensive FEA?