CDFM Cost and Economic Analysis 3

Question 1

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

Accepted Answer

Provide an unbiased cost assessment separate from the program office estimate

Answer

Replace the contractor's proposal before negotiations

Answer

Set the definitized contract price

Answer

Validate the contractor's earned value management system

Question 2

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

Accepted Answer

Identify how changes in key assumptions affect the outcome

Answer

Determine the contractor's profit motive

Answer

Calculate the exact NPV of a program

Answer

Establish the baseline cost estimate

Question 3

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

Accepted Answer

Letting past irrecoverable expenditures influence future investment decisions

Answer

Underestimating future O&S costs because past spending seems large

Answer

Failing to discount future costs to present value

Answer

Overestimating residual value of aging equipment

Question 4

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

Accepted Answer

Cost Plus Fixed Fee (CPFF)

Answer

Firm Fixed Price (FFP)

Answer

Fixed Price Incentive Firm (FPIF)

Answer

Cost Plus Award Fee (CPAF)

Question 5

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?

Accepted Answer

50–80 percent

Answer

10–20 percent

Answer

20–35 percent

Answer

85–95 percent

Question 6

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

Accepted Answer

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

Answer

Cost risk is highest at program completion

Answer

Government and contractor estimates always converge at Milestone C

Answer

Parametric estimates are more accurate than engineering estimates at all phases

Question 7

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

Accepted Answer

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

Answer

Accept the contractor's proposed costs as the negotiation baseline

Answer

Establish a fixed-price contract ceiling before competition

Answer

Audit the contractor's accounting system for compliance