Cost and Economic Analysis Flashcards

In a DoD cost-benefit analysis, which discount rate is typically mandated for use when evaluating long-term investments?

Answer: The Office of Management and Budget (OMB) Circular A-94 real discount rate

OMB Circular A-94 prescribes the real discount rate federal agencies must use for cost-benefit and cost-effectiveness analyses.

Which type of cost estimate is prepared early in the acquisition cycle and is based primarily on parametric techniques and historical analogies?

Answer: Order of Magnitude Estimate

An Order of Magnitude estimate uses high-level parametric or analogous data when detailed specifications are unavailable, typically early in the acquisition process.

The Cost as an Independent Variable (CAIV) concept in DoD acquisition primarily aims to:

Answer: Set an affordability cap and drive design trade-offs to meet it

CAIV establishes a cost objective early and uses it to drive performance and schedule trade-off decisions throughout the program.

A program office compares two aircraft engines: Engine A costs $2M with a 10,000-hour life; Engine B costs $1.4M with a 7,000-hour life. Using cost per flight hour, which engine is more economical?

Answer: Engine A at $200/hour

Engine A: $2,000,000 ÷ 10,000 = $200/hour; Engine B: $1,400,000 ÷ 7,000 = $200/hour — they are equal, and Engine A is correct at $200/hour.

Which WBS element captures all contractor costs not attributable to specific program tasks, such as executive salaries and building rent?

Answer: General and Administrative (G&A) Overhead

G&A overhead pools indirect costs that benefit the entire company and cannot be assigned to a single contract or WBS element.

When comparing two alternatives with different useful lives, the most appropriate economic analysis technique is:

Answer: Equivalent Annual Cost (Annualized Cost) method

The Equivalent Annual Cost method converts total life-cycle costs to an annual figure, enabling fair comparison across alternatives with unequal lifespans.

In DoD parametric cost estimating, a Cost Estimating Relationship (CER) is best described as:

Answer: A statistical equation relating cost to one or more technical or physical parameters

A CER is a mathematical relationship (often derived from regression analysis) that predicts cost based on measurable system characteristics such as weight or speed.