Attachment 6 Benefits and ROI Guidance.pdf

Navy ManTech Program

REV F OCT24

Return on Investment (ROI) and Benefits Guidance

Attachments:

1. Benefits and ROI Calculation for Sample Project

A. PURPOSE

The purpose of this instruction is to standardize the process to calculate Return on Investment (ROI) and provide guidance on capturing the overall impact of all Navy ManTech proposals or projects, including Capability Acceleration projects. The instruction provides direction on capturing the ROI, as well as any additional benefits that may be achieved. The intent of an ROI is to establish a measure of potential benefit of the proposal / project early in the planning and execution period. The ROI calculation is intended to estimate the rough order of benefit that might be achieved if the proposal or project is approved, successful, and fully implemented. Examples of additional benefits include, but are not limited to, reduced schedule or span time, enhanced capability, improved safety, reduced downtime, reduced weight, etc. It is incumbent upon the project team to quantify the ROI and additional benefits to the greatest extent possible, while clearly stating all assumptions that were made. Any benefits that cannot be accurately quantified should be qualitatively described in as much detail as possible. The benefits and ROI collectively should clearly explain the overall impact of the project, in terms of benefit to industry and the Navy, and be the selling point for the effort.

B. INSTRUCTIONS

The following outlines the standardized process and assumptions that shall be used by all COEs to establish the ROI. Any deviation from this process requires approval of the ONR Program Officer.

1. For ROI calculation purposes, the proposal / project shall clearly state the date implementation is expected to begin. For projects where partial implementation is expected, both the date of partial implementation as well as the date of full implementation shall be provided. The project team can use the date of partial implementation or full implementation for subsequent ROI calculations, but the rationale shall be provided.

2. A five-year period, which begins a maximum of 18 months after completion of the project, shall be used to establish the ROI metric. For projects that realize implementation earlier than 18 months after completion of the project, use that implementation date for the start of the five-year ROI period.

Clearly state all assumptions and rationale for the chosen five-year ROI period.

3. Additional ROI calculations, such as a 10-year or life-of-program ROI, may be provided IN ADDITION TO the mandatory five-year ROI. All necessary details and assumptions that were included in the additional ROI calculations shall be provided.

4. The current Navy 30-year shipbuilding plan shall be used to determine the number of hulls impacted by the proposal / project. The F-35 production schedule shall be used for aircraft production quantities for the ROI calculation. If other justifications are used, the basis of estimate shall be clearly articulated and provided. The basis of estimate shall be consistent for each specific platform. Projects that impact repair, sustainment, or non-traditional platforms shall provide all quantities, assumptions, and additional information that is required to understand the impact, benefits, and calculated ROI.

5. The “RETURN” shall be the total savings resulting from the Navy ManTech project’s solution applied to the appropriate number of hulls, aircrafts, or systems identified in the five-year period selected. If project metrics include both threshold and objective savings targets, the THRESHOLD savings shall be used when calculating the RETURN.

6. For proposals that impact more than one hull or aircraft platform, the RETURN shall include the total savings resulting from the application of the project’s solution to all hulls, aircrafts, and/or systems impacted. For example, a project that will provide project savings to both VIRGINIA and COLUMBIA Class submarines will use the savings estimated for both platforms as the “RETURN” for the project.

Cross-platform implementations are encouraged and need not only apply to hulls / aircraft within the

Navy ManTech Investment Strategy (i.e., ships such as LHA, LPD, and NSC or aircraft such as F-18 and UUVs, etc. can be included). A separate ROI that calculates the only investment strategy platforms shall be included.

7. For platforms that have multiple hulls being built annually, determine whether the project solution applies to all hulls. For example, if a project solution applies to a process only at Groton and applies to hulls built and completed at General Dynamics Electric Boat, then only one hull per year should be included in the RETURN.

8. If other assumptions make more sense for a specific project, state the assumptions, and explain why they are being used.

9. Use the generalized formula shown below for the ROI calculation:

ROI = RETURN - INVESTMENT

INVESTMENT

10. RETURN (cost reduction) should be rounded to the first decimal point and reported in $M.x or $K.x.

Use the following guidance to determine the INVESTMENT.

1. Include the ManTech investment.

2. Include all DoD funding for process certification, training, and capital equipment investment.

3. DO NOT INCLUDE shipyard or original equipment manufacturer (OEM) investments for equipment and facilities that are funded using non-DOD funds.

4. For project solutions at multiple shipyards / OEMs, include the investment at each shipyard / OEM to arrive at the total INVESTMENT.

5. All required implementation costs shall be captured when assessing the benefits, business case, and

ROI. Implementation costs that are planned to be expended regardless of the ManTech project, and which are funded by sources other than DoD, do not need to be included in the ROI calculation.

These costs shall be captured and tracked as a component of implementation risk, but they do not need to be included in the ROI calculation.

C. QUALITATIVE ROI GUIDANCE FOR AFFORDABILITY PROJECTS

The following qualitative guidance outlines how the ROI will factor into the attractiveness of the proposal / project:

1. Target ROI values less than 1 are considered undesirable as an affordability project unless there are additional benefits that can be measured.

2. Target ROI values between 1 and 2 are considered minimally acceptable for an affordability project.

3. Target ROI values of 2 or greater are considered good affordability projects.

D. REPAIR AND SUSTAINMENT GUIDANCE

The following metrics and guidance are provided for consideration to capture impact for repair and sustainment efforts:

1. Percent (%) reduction in number of days required for maintenance operations

2. Labor-hour reduction (specific jobs that are common e.g., pump overhauls, lube oil flush)

3. Reduction in cycle time (specific jobs)

4. Operational availability = Ao (Individual platform and rolled–up class and ship type for aircraft carriers, submarines, surface ships)

5. Ability for maintenance and repair work to fit within the availability

6. Reduction in drydock days

7. Estimated cost avoidance ($/availability or $/day aircraft)

8. Percent (%) increase in shipyard capacity (pier-side vs drydock)

9. Reduction in unplanned work and rework

10. Reduction in repair process labor (labor hour/activity)

11. Reallocation of surplus labor to next priority

12. Reduction in manufacturing labor shortage

13. Reduction in labor content per task (hours or personnel)

ATTACHMENT 1 – ROI CALCULATION FOR SAMPLE PROJECT

1. Project: Optimized Thick-Section Welding – a new welding process project conducted for

Newport News Shipbuilding (NNS) will reduce welding time and improve quality for thick-section welding.

2. Period of Performance: December 2017 – November 2019

3. ManTech Investment: $650,000

4. Implementation Assumptions:

First Year of Implementation – 2020 Final Year of Implementation – 2024 Will implement at NNS on CVN 78 Class o Number of Carriers Built Between 2020 and 2024 – 1 Will also implement at Ingalls Shipbuilding on DDG 51 Class o Number of DDG 51s Built Between 2020 and 2024 – 10 but only 5 at Ingalls Will also implement on other ships under construction at Ingalls Shipbuilding – LPD/LX(R) o Number of LPD / LX(R) Acquired Between 2020 and 2024 – 1

5. Investment Assumptions1:

Included costs:

ManTech Investment – $650,000 CVN 78 Program Office Investment – Welding Process Certification – $50,000 Ingalls Investment – Welding Process Certification – $60,000 Ingalls Investment – Welding Equipment (used in DDG 51 assembly cell) – $80,000 Costs that are tracked but not included:

NNS Investment – Facility to House Equipment and Equipment (will be used on VCS and

CVN overhauls) – $150,000

6. Return (Savings) Assumptions:

Savings for CVN 81 – $750,000 Savings per DDG 51 hull – $190,000 Savings per LPD / LX(R) hull – $150,000

7. ROI Calculation

ROI = RETURN – INVESTMENT

INVESTMENT

ROI = ($750,000 + $950,000 + $150,000) - ($650,000 + $50,000 + $60,000 + $80,000)

($650,000 + $50,000 + $60,000 + $80,000)

ROI = ($1,850,000 - $840,000)

$840,000

8. ROI

1.20

1. All required implementation costs shall be captured when assessing the benefits, business case, and ROI. Implementation costs that are planned to be expended regardless of the ManTech project and which are funded by sources other than Navy, do not need to be included in the ROI calculation. These costs shall be captured and tracked as a component of implementation risk, but they do not need to be included in the ROI calculation.