The CBA methodology - EMOSIA
Throughout our more than 10 years of experience in conducting CBA analysis in Air Traffic Management, we developed EMOSIA, standing for European Models for ATM Strategic Investment. We believe it represents a valuable method for informed decision-making and a common language for CBAs.
EMOSIA is the first cost-benefit analysis method developed by the European ATM/CNS community for the European ATM/CNS community. The EMOSIA methodology was developed in close cooperation with our stakeholders and taking into account their different needs.
The objective of EMOSIA is to facilitate decision-making by understanding the global impact on ATM performance of any proposed change, thus reducing investment risk. This will drive the ATM system’s development by goals rather than on the basis of adding new components to an existing baseline. With EMOSIA, informed decisions can be made on ATM/CNS (air traffic management/communication, navigation and surveillance) investments that are traceable, consistent and transparent.
Our conclusion is that, specifically in the field of ATM where significant investments are needed and payback horizons can be quite long, it is of vital importance to apply two sound principles:
- Iteration: proceeding by successive approximations, selecting what really matters for further improvements, reducing uncertainty accordingly by collecting more information and/or gaining more control on the project dimensions.
- Interaction: fostering a continuous dialogue between all project stakeholders, involving them as early as possible with the aim of obtaining their ownership and buy-in.
The 9 EMOSIA steps.
The EMOSIA model follows 9 generic steps:
1. Definition of the project.
We draw the big picture of the project. We discuss with our stakeholders the basics of the project such as:
- Which decision needs to be supported?
- What is the project?
- Who are the stakeholders involved?
- The different responsibilities and deliverables.
- The expected lifecycle.
2. Identification of stakeholders.
We try to be as focused on our stakeholders as possible and we like to spend some time identifying who will be influenced by the project and how their business models will be impacted.
3. Description of the benefits.
It is important to identify the most suitable way to measure the expected benefits of the project. Again, a continuous dialogue with the interested stakeholders is necessary at this stage.
4. Collection of inputs.
We rely on our previous analyses and models to input initial data to our models. A good overview is presented by our Standard Inputs for EUROCONTROL Cost Benefit Analyses.
5. Generation of the model.
At this point, we start creating our economic model. We sometimes re-use existing models or we develop them from scratch. We use best suited software tools and try to create different scenarios depending on a range of assumptions. We verify and validate results with operational experts and discuss outputs with stakeholders.
6. Sensitivity analysis.
At this stage we identify the most critical values to the success of the project. As usual, we discuss the results of our sensitivity analysis with our stakeholders.
7. Risk analysis.
We study the risks associated to the project and their impact on the expected Net Present Value. By selecting a range of critical variables we can have a good estimation of the associated probabilities. We discuss the output with the stakeholders.
At this point in the project lifecycle, we are ready to provide the data to support the best informed decision. We prepare a report presenting the results, conclusions and recommendations and we discuss it with stakeholders. The decision-makers have now all the information they need to decide on the suitability of the project.
9. Look back and iterate.
Following recommendations by our stakholders or when new developments appear that we could not take into our initial analysis, we look back and iterate. We try to update our assumptions, learn from the past and so reduce the uncertainty inherent to any project.
We rely on the widely accepted concept of Net Present Value (NPV): the value of the expected benefits minus costs, discounted to take account of the time value of money.
We can also calculate the payback period, the approximate date when the initial investments will be recovered thanks to the expected benefits.
We do not limit our analysis to just monetary considerations but we study equally:
- The impact of the project on each stakeholder's cost.
- We identify the most critical variables to the value of the project.
- We analyse the risk of the projects meaning what is the likelihood that the project deviates from the expected values.
- EMOSIA enables the prioritisation of activites from early in the lifecycle of the project.