WASHINGTON, DC (May 31, 2017) -- The U.S. Army, just like private industry perform studies and analysis to realize cost savings and avoidance, to inform decision-making by leadership, and to determine the appropriate direction in which to proceed. Measuring Business Intelligence (BI), analytics, and Return on Investment (ROI) are vital to all organizations, but how does the U.S. Army compare to private industry in terms of measuring and analyzing these initiatives?
In terms of return on investment (ROI) -- a comparison of investment cost with gains or resulting cost savings and cost avoidance -- Army analysis compares favorably with private industry. The Army ensures all analytical efforts performed through the Army Study Program Management Office, which is responsible for allocation of centrally managed Headquarters, Department of the Army Study resources, undergo a rigorous review process which considers ROI among the highest-weighted decision factors.
The Army places great value on its analytic community and the professional development of its members. The U.S. Army Training and Doctrine Command Analysis Center (TRAC) estimates that the cost to recruit, train, and retain a civilian ORSA is approximately $600,000 over seven years. The analytics conducted by internal Army analysis organizations result in similar, if not greater cost savings with higher returns on investment than Fortune 500 companies.
For example, the team at TRAC leads a vast majority of studies called Analyses of Alternatives (AoA). A recent AoA analyzed replacement of the GATOR mine system at a cost of $6.9 million, but resulted in $5.6 billion in cost savings -- an 812:1 ROI. Another AoA conducted to analyze Humvee replacement cost TRAC $3.4 million and resulted in $19.4 billion in cost savings for the Army, realizing a 5,706:1 ROI. These are only two of many examples of cost savings realized by TRAC AoAs.
The U.S. Army Materiel Systems Analysis Activity (AMSAA) also conducts AoAs. One effort that cost $3.3 million to conduct informed a preferred cost effective alternative decision, resulting in cost avoidance of $199 million and an ROI of 60:1. The AMSAA staff also provides analytical support to Army Materiel Command for Secondary Item Excess Inventory Reduction efforts at an annual cost of $150,000. The reduction efforts led to a cost avoidance of $56 million annually, realizing a ROI of 370:1.
Significant ROI may be realized through cost avoidance or results that inform major decisions. This is especially true for the Army, where ROI may be realized through enhanced security or efficiency. Addressing a critical need for U.S. Central Command and the U.S. Government to identify and interdict illicit money transfers that finance terrorist activities, analysts at the Center for Army Analysis used big-data analytics to develop methods and tools that queried, merged, and compared multiple large databases. The results supported the exploitation of an international criminal cyber network's financial transactions, and represent substantial ROI in terms of avoided cost.
Examples of cost savings and avoidance based on analysis from private industry are also numerous. Proctor & Gamble for example, has applied operations research methods to reorganize sourcing and distribution approaches, saving the company $200 million. The company relies heavily on their data analytics team for significant analyses on supply-chain structure and the team's recommendations have generated more than $1 billion in cost savings.
General Motors (GM) also applies operations research methods to change the way it leverages advanced analytics; no area of GM appears to be untouched by analytical methods. General Motors estimates that savings resulting from the implementation of analytical efforts are estimated at more than $2 billion over the past two decades.
The RAND Arroyo Center, the Army's primary Federally Funded Research and Development Center, receives funding from the Army to perform studies and analyses on an annual basis. RAND Arroyo Center support for the Army during Operation Iraqi Freedom/Operation Enduring Freedom (OIF/OEF) provides several examples of significant ROI. For example, multiple Arroyo Center projects developed enhanced business rules and algorithms for deciding when to retain and reutilize serviceable inventory in theater, rather than dispose of it or ship it back to the U.S. This resulted in a cost avoidance of $110 million. Since the initial cost of these efforts was $1.025 million, the Army realized a 100:1 ROI.
Also in support of OIF/OEF, Arroyo Center analysis demonstrated that the Army could save significant resources and improve readiness by establishing an inventory buffer for high-demand but low-cost items in Kuwait, and replenishing those items by sealift. This analysis at a cost of $810,000, led to savings of more than $1 billion and a 1000:1 ROI.
In the future, Fortune 500 corporations will continue to examine their strategies and their business capabilities to understand where they can get an analytical edge. The same is true for U.S. Army analytic organizations, as they focus on what makes their organizations distinctive and how analytics can support or drive a distinctive capability to achieve cost savings or improvements in efficiency or safety.