The Economics of Human Systems Integration: Valuation of Investments in Peoples Training and Education, Safety and Health, and Work Productivity: 72 ... Series in Systems Engineering and Management) - Hardcover

Rouse, William B.

Hardcover

ISBN 10: 0470486767 ISBN 13: 9780470486764

Publisher: Wiley, 2010

Synopsis

Fundamental Economic Principles, Methods, and Tools for Addressing Human Systems Integration Issues and Tradeoffs

Human Systems Integration (HSI) is a new and fundamental integrating discipline designed to help move business and engineering cultures toward more human-centered systems. Integrating consideration of human abilities, limitations, and preferences into engineering systems yields important cost and performance benefits that otherwise would not have been accomplished. In order for this new discipline to be effective, however, a cultural change―starting with organizational leadership―is often necessary.

The Economics of Human Systems Integration explains the difficulties underlying valuation of investments in people's training and education, safety and health, and work productivity. It provides an overview of how the field of economics addresses these difficulties, focusing on human issues associated with design, development, production, operations, maintenance, and sustainment of complex systems.

The set of thought leaders recruited as contributors to this volume collectively provides a compelling set of data and principles for assessing the economic value of investing in people, not just in general but in specific investment situations. The early chapters provide the contexts for HSI and investment analysis, illustrating the enormous difference context makes in how issues are best framed and analyzed. A host of practical methods and tools for investment valuation are then presented. Provided are:

• A variety of real-world applications of economic analysis ranging from military acquisition and automotive investment to healthcare and high-tech investments in general, in both the U.S. and abroad

• A range of economics-based methods and tools for cost analysis, cost-benefit analysis, and investment analysis, as well as sources of data for performing such analyses

• Differing perspectives on economic decision-making, including a range of private sector points of view, as well as government and regulatory perspectives

In addition, five real-world case studies illustrate how such valuations have been done and their major impacts on investment decisions. HSI professionals, systems engineers, and finance professionals who address investment analysis will appreciate the wide range of methods and real-life applications; senior undergraduates and masters-level graduate students will find this to be an excellent textbook that provides theory and supports practice.

About this title

About the Author

William B. Rouse is Executive Director of the Tennenbaum Institute at the Georgia Institute of Technology. He is also a professor in the College of Computing and School of Industrial and Systems Engineering. Rouse's earlier positions include chair of the School of Industrial and Systems Engineering, CEO of two innovative software companies―Enterprise Support Systems and Search Technology―and faculty positions at Georgia Tech, University of Illinois, Delft University of Technology, and Tufts University.

Human Systems Integration (HSI) is a new and fundamental integrating discipline designed to help move business and engineering cultures toward more human-centered systems. Integrating consideration of human abilities, limitations, and preferences into engineering systems yields important cost and performance benefits that otherwise would not have been accomplished. In order for this new discipline to be effective, however, a cultural change―starting with organizational leadership―is often necessary.

The Economics of Human Systems Integration explains the difficulties underlying valuation of investments in people's training and education, safety and health, and work productivity. It provides an overview of how the field of economics addresses these difficulties, focusing on human issues associated with design, development, production, operations, maintenance, and sustainment of complex systems.

The set of thought leaders recruited as contributors to this volume collectively provides a compelling set of data and principles for assessing the economic value of investing in people, not just in general but in specific investment situations. The early chapters provide the contexts for HSI and investment analysis, illustrating the enormous difference context makes in how issues are best framed and analyzed. A host of practical methods and tools for investment valuation are then presented. Provided are:

• A variety of real-world applications of economic analysis ranging from military acquisition and automotive investment to healthcare and high-tech investments in general, in both the U.S. and abroad

• A range of economics-based methods and tools for cost analysis, cost-benefit analysis, and investment analysis, as well as sources of data for performing such analyses

• Differing perspectives on economic decision-making, including a range of private sector points of view, as well as government and regulatory perspectives

In addition, five real-world case studies illustrate how such valuations have been done and their major impacts on investment decisions. HSI professionals, systems engineers, and finance professionals who address investment analysis will appreciate the wide range of methods and real-life applications; senior undergraduates and masters-level graduate students will find this to be an excellent textbook that provides theory and supports practice.

Human Systems Integration (HSI) is a new and fundamental integrating discipline designed to help move business and engineering cultures toward more human-centered systems. Integrating consideration of human abilities, limitations, and preferences into engineering systems yields important cost and performance benefits that otherwise would not have been accomplished. In order for this new discipline to be effective, however, a cultural change—starting with organizational leadership—is often necessary.

The Economics of Human Systems Integration explains the difficulties underlying valuation of investments in people's training and education, safety and health, and work productivity. It provides an overview of how the field of economics addresses these difficulties, focusing on human issues associated with design, development, production, operations, maintenance, and sustainment of complex systems.

The set of thought leaders recruited as contributors to this volume collectively provides a compelling set of data and principles for assessing the economic value of investing in people, not just in general but in specific investment situations. The early chapters provide the contexts for HSI and investment analysis, illustrating the enormous difference context makes in how issues are best framed and analyzed. A host of practical methods and tools for investment valuation are then presented. Provided are:

• A variety of real-world applications of economic analysis ranging from military acquisition and automotive investment to healthcare and high-tech investments in general, in both the U.S. and abroad

• A range of economics-based methods and tools for cost analysis, cost-benefit analysis, and investment analysis, as well as sources of data for performing such analyses

• Differing perspectives on economic decision-making, including a range of private sector points of view, as well as government and regulatory perspectives

In addition, five real-world case studies illustrate how such valuations have been done and their major impacts on investment decisions. HSI professionals, systems engineers, and finance professionals who address investment analysis will appreciate the wide range of methods and real-life applications; senior undergraduates and masters-level graduate students will find this to be an excellent textbook that provides theory and supports practice.

Excerpt. © Reprinted by permission. All rights reserved.

The Economics of Human Systems Integration

Valuation of Investments in Peoples Training and Education, Safety and Health, and Work Productivity

John Wiley & Sons

Copyright © 2010 John Wiley & Sons, Ltd
All right reserved.
ISBN: 978-0-470-48676-4

Chapter One

Introduction

William B. Rouse

1.1 INTRODUCTION

This book is concerned with the economic value of investing in people. A range of types of investments is of interest, for example:

? Investments in work technologies directly augment people's performance.

? Investments in education and training enhance people's potential to perform.

? Investments in health and safety enhance people's availability to perform.

? Investments in organizational processes enhance people's willingness to perform.

Such investments interact, as shown in Figure 1.1, to enable work performance that translates demands for products and services into supply of products and services.

Note that this line of reasoning applies to people who operate, maintain, and manage systems, as well as to those who research, design, and invest in systems. There are many stakeholders in the success of a system. It is likely that investing in the performance of several types of stakeholders can enhance this success. Therefore, for example, investing solely in enhancing the performance of aircraft pilots will result in less success than achievable by also investing in aircraft mechanics and, perhaps, in aircraft designers.

Often the monies associated with these types of investments are simply viewed as operating costs. Investments in technologies such as computer workstations or manufacturing equipment usually show up as assets on an enterprise's balance sheet. However, monies spent on education, training, health, and safety usually only appear as expenses on the income statement. Thus, these expenditures may not be viewed as investments at all.

This book focuses on how to attach economic value to the returns provided by these expenditures. The goal is to provide an integrated view of how best to assess and project the economic value of people's performance, potential to perform, availability to perform, and willingness to perform. This involves considering both the costs of these investments and the subsequent economic returns, all over time. This also involves considering the uncertainties associated with these costs and returns.

It is useful to discuss why economic valuation of investments in people is difficult. One reason is the fact that such investments usually do not yield tangible assets—hence, they are absent from the balance sheet. One can inventory computers and equipment. However, it is difficult to "inventory" people's potential or availability to perform. An obvious reason is that one cannot own people, so they may deploy this potential elsewhere. Another complication is the fact that the circumstances may not call on people to perform (e.g., the demand in Figure 1.1 may be less than the work performance that could be supplied). Perhaps consumers will not want automobiles or refrigerators. Perhaps there will not be a war, a fire, or a crime.

Another reason for this difficulty is the typical lack of understanding of how work and work processes relate to value provided for customers or other constituencies. This makes it very difficult for enterprises to transform themselves when the nature of value fundamentally changes in a market (Rouse, 2006). Since the mids 1990s, (Hammer & Champy, 1994; Womack & Jones, 1996), there has been increased emphasis on understanding business processes and their relationships to value. Nevertheless, relatively few enterprises have mastered these skills.

Yet another reason underlying this difficulty is the lack of data upon which to base estimates of costs and returns, often in terms of cost savings. Perhaps surprisingly, organizations that have tendencies to document virtually every activity in their enterprise often have little ability to access this information for the purpose of estimating the parameters in economic models. The U.S. Department of Defense (DoD) is a notable example. The inability to estimate the costs of activities undermines the possibility of validating projected cost savings resulting from investing in people and, consequently, undermines the possibility of attaching value to these savings.

Despite such difficulties, it is very important that we have the methods and tools needed to attach economic value to investments in people. Many would agree with the general statement that a healthy, well-educated, and productive workforce is essential to a country's competitiveness. The question, however, is whether a particular health practice, educational program, or other investment will provide returns that justify the investment of scarce resources. Thus, we are less interested in the need to invest in general than we are in assessing and projecting the value of specific investments.

1.2 HUMAN SYSTEMS INTEGRATION

The issues and questions raised earlier could be addressed from a purely empirical perspective. One could collect data on the costs and returns of education, for example, and calculate an effective return on investment, for instance, for earning a college degree (see Chapters 4 and 5). Indeed, reports of such assessment frequently appear in newspapers and magazines. The general conclusion seems to be that investments in education do provide attractive returns in terms of enhanced incomes.

It this book, however, we are not concerned with investments in general. Instead, we would like to project the returns on investments in specific interventions for particular systems such as airplanes, ships, or factories. We would also like to address tradeoffs across alternative investments. For example, what are the relative returns from investments that directly augment human performance versus those that enhance the potential to perform (Rouse, 2007)? Should we invest scarce resources in a new flight management system or extended pilot training?

This book emphasizes the design, development, deployment, operation, and sustainment of complex systems. We want to engineer such systems so that the humans involved—operators, maintainers, and managers—are effective in performing their roles and in contributing to the value provided by these systems. The word "engineer" is used as a verb defining a set of activities rather than as a noun describing a discipline. Thus, the engineering of a system is perceived as involving many more disciplines than just engineering.

Systems engineering (SE) is the transdisciplinary set of activities that integrates across all the disciplines and activities involved in engineering complex systems. More specifically, "systems engineering is the management technology that controls a total system life-cycle process, which involves and which results in the definition, development, and deployment of a system that is of high quality, is trustworthy, and is cost-effective in meeting user needs" (Sage & Rouse, 2009). As might be imagined, SE involves a wide spectrum of methods, tools, and methodologies that address an enormous range of issues, many of which do not particularly relate to the humans associated with a complex system.

Human systems integration (HSI) is an element of SE that is concerned with understanding, designing, and supporting humans' roles and performance within a complex system. There are a variety of definitions of HSI. They fall into two broad classes (Booher, 1990, 2003; Pew & Mavor, 2007; Salvendy, 2006; INCOSE, 2008; Sage & Rouse, 1999):

One class of definitions focuses on integrating the knowledge, skills, and work outcomes of a range of human-related disciplines into the SE process:

? "HSI is a systems engineering process that integrates the seven technical domains of human factors engineering, manpower, personnel, training, habitability, personnel survivability, and safety/occupational health." (DoD, 2008) ? "HSI is synonymous with the traditional definition of human factors in the broadest sense. HSI adds to this traditional concept of human factors, the emphasis on integration of the individual HSI domains, and the integration of HSI into the acquisition process for emerging systems." (Malone, et al., 2007, p. 1) ? "HSI has come to be defined as the collection of development activities associated with providing the background and data needed for seamless integration of humans into the design process from various perspectives (human factors engineering, manpower, personnel, training, safety and health and, in the military, habitability and survivability) so that human capabilities and needs are considered early and throughout system design and development." (Pew & Mavor, 2007, p. 1)

The second class of definitions emphasizes HSI as a process within the SE process, with much less concern for articulating the distinct contributions of particular disciplines:

? "Human systems integration is primarily a technical and managerial concept, with specific emphasis on methods and technologies that can be utilized to apply the HSI concept to systems integration." (Booher, 1990, 2003, p. 4) ? "HSI is the interdisciplinary technical and management processes for integrating human considerations within and across all system elements." (INCOSE, 2008, p. 7) ? "Human-centered design is a process of assuring that the concerns, values, and perceptions of all stakeholders in a design effort are considered and balanced." (Rouse, 1991, 2007, p. 5)

This book is much more concerned with a process-oriented view of HSI. The seven or eight disciplines typically associated with the discipline-oriented view of HSI certainly represent important contributors to HSI, in particular, and to SE, in general. However, the human abilities, limitations, and inclinations of those who will operate, maintain, and manage the complex system of interest should be the central issues of interest rather than the extent to which these issues fall in the bailiwick of one discipline or another.

In summary, the focus is on the economics of investments in humans in the context of engineering complex systems. To many readers, this would seem to be synonymous with engineering economics (Newman et al., 2008; White et al., 2008). Chapter 7 addresses this field. However, this material is not sufficient when we are concerned with investments in people, in part because of the difficulties elaborated earlier. Furthermore, we need to understand the nature of investments in humans in the organizational contexts where these investments are considered.

1.3 ORGANIZATIONAL CONTEXTS

The two types of organizational context of interest are the system operational context (e.g., commercial airlines vs. military aircraft operations) and the systems engineering context, (e.g., commercial development vs. government procurement). These two types of context have enormous impacts on the ways in which operational value is defined and engineering value is created. Chapter 2, "Industry & Commercial Context," and Chapter 3, "Government & Defense Context," provide in-depth discussions of the ways in which operational and engineering considerations differ in these two domains. In this introductory chapter, the rationale for these distinctions is elaborated. Furthermore, a framework is outlined for characterizing the organizational contexts within which SE and HSI happens. This framework is carried forward into Chapters 2 and 3.

In studying the engineering of systems across many years, an overarching conclusion is that decision-making processes and decision outcomes occur in the context of the overall enterprise that, in turn, operates in a much broader context (Rouse, 2007). As shown in Figure 1.2, the success of an enterprise is both enabled and constrained by the nature of its markets and its internal capabilities to serve these markets, all of which occur in the broader context of the economy, which is increasingly global.

The value of investing in people depends on what an enterprise's markets value. Design, development, deployment (or distribution), and support of high-quality systems, products, and services requires investments that command higher prices than low-cost and/or commodity offerings. Some of these investments are in the people who design, develop, deploy, operate, maintain, and manage these offerings. Inadequate education and training, for example, result in less than high-quality service. Of course, investments could be made in technology that, for instance, enables Web-based self-service.

Thus, there are tradeoffs among alternative investments in people and across investments in other ways to succeed in the marketplace. The ways in which such tradeoffs are formulated and resolved depends, in part, on the nature of the market and, to a great extent, on the nature of the enterprise. As enterprises mature and become more successful, there is a strong tendency to develop "organizational delusions" that hinder approaching new problems in new ways (Rouse, 1998). For example, organizations where one discipline dominates (e.g., aerospace engineering in the aviation industry and electrical engineering in the semiconductor industry) tend to see all problems through these disciplinary lenses regardless of whether such a perspective is warranted.

The U.S. DoD provides a compelling example of how organizational context strongly affects how SE and HSI are pursued. As discussed in later chapters, the Government Accountability Office (GAO) has frequently criticized the DoD for acquiring weapon systems that do not meet performance requirements, far exceed original cost projections, and are deployed long after initial projections. This criticism cuts across ships, aircraft, and other large weapon systems. The GAO has concluded that these deficiencies result from not employing the best systems engineering practices. They also observe that this is not from a lack of knowledge but instead from a lack of will.

Figure 1.3 illustrates the U.S. enterprise for acquiring military ships. Note the large number of stakeholders in shipbuilding, many of whom have interests that go far beyond timely acquisition of high-performing, cost-effective ships. These stakeholders affect the ship-building enterprise in a variety of ways:

? Congressional interests and mandates (e.g., jobs and other economic interests)

? Service interests and oversights (e.g., procedures, documentation, and reviews)

? Incentives and rewards for contractors (e.g., cost-plus vs. firm fixed price)

? Lack of market-based competition (e.g., hiring and retention problems)

? Aging workforce and lack of attraction of jobs (e.g., outsourcing limitations and underutilization of capacity)

There have, in recent years, been many studies of the best commercial practices with a goal of reducing the costs and time required for military ship production. These initiatives have had positive impacts. However, there are important differences between military and commercial ships (Birkler et al., 2005). For example, the hull of a ship represents a much higher fraction of the value of a commercial ship compared with a military ship where the onboard systems are much more sophisticated.

Nevertheless, the interests of these stakeholders mitigate against acquiring ships faster and cheaper. Key stakeholders have staunchly defended the jobs and profits that would be lost were best practices adopted. Levinson's chronicle of adoption of containerized shipping by the commercial shipping industry provides an excellent illustration of key stakeholders doing their best to thwart fundamental changes (Levinson, 2006). Thus, the reactions of DoD stakeholders to attempts to adopt best SE practices and thereby transform the shipbuilding enterprise are far from unusual.

Organizational context plays an enormous role in the engineering of complex systems. The adoption of best SE and HSI practices is strongly affected by the context. Hence, the ways in which economic value is attributed to investments in people is likely to differ across contexts. The need to understand such differences has led to the following framework for characterizing organizational contexts. These ten questions provide a foundation for developing the economic models needed to assess and project economic value in a particular context:

1. What forces drive the acquisition of new systems?

2. What is the role of competition in providing new systems?

3. How large is the set of potential customers for new systems?

4. How are customers' requirements determined?

5. How are customers' budgets assessed or projected?

6. How large are production runs (i.e., number of units)?

7. How long are system life cycles (i.e., years)?

8. Who takes what risks in the system life cycle?

9. Who gains what rewards in the system life cycle?

10. How are future sales affected by past performance?

(Continues...)

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Edition details

• Publisher: Wiley
• Publication date: 2010
• Language: English
• ISBN 10: 0470486767
• ISBN 13: 9780470486764
• Binding: Hardcover
• Edition number: 1
• Number of pages: 440