Cost and Economic Analysis Flashcards

Under DoD 5000.04-M, the primary purpose of an Independent Cost Estimate (ICE) is to:

Answer: Provide an unbiased cost assessment separate from the program office estimate

An ICE is produced by an independent organization (e.g., CAPE) to give decision-makers an unbiased perspective on program costs free from program office advocacy.

A sensitivity analysis in a defense economic analysis is used primarily to:

Answer: Identify how changes in key assumptions affect the outcome

Sensitivity analysis systematically varies input assumptions to show which variables most influence the economic analysis results.

The 'sunk cost fallacy' in defense resource allocation refers to:

Answer: Letting past irrecoverable expenditures influence future investment decisions

Sunk costs are already spent and cannot be recovered; rational analysis should base future decisions only on prospective costs and benefits.

Which contract type places the greatest cost risk on the government?

Answer: Cost Plus Fixed Fee (CPFF)

Under CPFF, the government reimburses all allowable costs plus a fixed fee regardless of actual cost performance, placing maximum cost risk on the government.

In a life-cycle cost analysis, Operations and Support (O&S) costs for a major defense system typically represent what proportion of total life-cycle costs?

Answer: 50–80 percent

O&S costs (fuel, maintenance, personnel, training, sustaining support) typically account for 60–80% of total life-cycle costs for major defense systems.

The 'cone of uncertainty' in program cost estimation illustrates that:

Answer: Estimate accuracy improves as the program matures and more information is available

The cone of uncertainty shows that cost estimates become more precise as design matures, requirements stabilize, and actual data replaces assumptions.

Under the DoD Should-Cost initiative, the goal of a Should-Cost review is to:

Answer: Identify inefficiencies and set cost targets below the contractor's Would-Cost estimate

Should-Cost reviews challenge contractor cost assumptions and business practices to drive efficiencies, targeting a cost below what the program Would-Cost under current practices.