Cost and Economic Analysis Flashcards

In defense acquisition, 'affordability' is best enforced through which mechanism at Milestone A?

Answer: Establishing an Affordability Cap tied to the program's budget allocation

DoD policy requires programs to establish affordability caps at Milestone A that reflect what the Department can afford, driving requirements and design trade-offs.

Which of the following best defines 'economic life' in the context of a defense economic analysis?

Answer: The period during which an asset provides benefits that justify its continued operation over replacement

Economic life ends when continuing to operate an asset costs more than replacing it, making replacement the economically rational choice.

A break-even analysis in defense resource management determines the point at which:

Answer: The cumulative benefit of a new system equals the cumulative cost of transition from the legacy system

Break-even analysis identifies when the savings or benefits from adopting a new system recoup its acquisition and transition costs relative to the incumbent system.

The primary purpose of a Nunn-McCurdy breach notification is to:

Answer: Alert Congress when a program's unit cost growth exceeds statutory thresholds

Nunn-McCurdy requires the DoD to notify Congress when a program's Program Acquisition Unit Cost or Average Procurement Unit Cost grows beyond 15% (significant) or 25% (critical) above the current baseline.

In an EVM-integrated cost estimate, the Estimate at Completion (EAC) using the CPI efficiency factor is calculated as:

Answer: BAC / CPI

EAC = BAC ÷ CPI assumes the program will continue to perform at its current cost efficiency for all remaining work.

Which technique is specifically designed to identify the value of design options by determining the minimum benefit required to justify an additional cost increment?

Answer: Marginal analysis (incremental cost-benefit)

Marginal analysis evaluates whether the incremental benefit of an additional feature or capability is worth its incremental cost, preventing over-specification.

Under DoD guidance, a cost estimate is considered 'credible' when it:

Answer: Addresses risk and uncertainty, documents assumptions, and is cross-checked against independent data

GAO's cost estimating best practices define credibility as performing risk and sensitivity analyses, cross-checking results, and thoroughly documenting assumptions and methodology.