Module 2 Competency 2: Cost and Economic Analysis Flashcards
The Defense Acquisition is the management process that guides DoD acquisition programs and is basically the process by which programmatic risk is managed. What are the three programmatic risks that must be successfully managed?
Cost, Schedule, and Performance Risks
What are the appropriations that may be used to fund an acquisition program?
RDT&E, Procurement, O&M, MILCON, and MILPERS
What is the acquisition approach that delivers capability to the warfighter in set of increments spread over time - with a known desired end-state capability - rather than in a single effort, because technology is not yet available to provide that end-state capability?
Evolutionary acquisition
What is the term used to describe dollars shown in the life-cycle cost estimate wherein the effects of inflation are not considered?
Base Year Dollar or Constant Year Dollars
What is the term used to describe dollars used for programming and budgeting purposes wherein the effects of inflation are considered?
Then-year dollars or current year dollars
What cost structure does MIL-STD-881C represent?
Work Breakdown Structure (WBS)
What concept is based on the axiom that the best time to reduce cost is early in the process?
Cost As an Independent Variable (CAIV)
Which cost estimating method is based on direct comparison with historical information of one similar system?
Analogy Method
Which cost estimating method is known as a statistical method or top-down method?
Parametric Approach
Which cost estimating method requires extensive knowledge of the product or process?
Engineering Approach
What are the methods/steps in conducting the Delphi Technique?
1) Query expert opinion
2) Seek supporting rational or information from each expert
3) Summarize Results
4) Gather second opinion
5) Continue iteration until consensus or near-consensus is reached
What is the theory that as the quantity of output doubles, the man-hours required to produce the quantity decreases at a fixed rate?
Learning Curve Theroy
What is the name of the integrated management tool intended to relate contractor actual performance on a contract to the contractor’s planned cost and schedule, that measure the work in progress in objective terms, and that states the value of the work completed in dollars?
Earned Value Management System (EVMS)
What is the EVM-related term when there is a difference between budgeted cost of work performed (BCWP) and actual cost of work performed (ACWP) on a cost reimbursable contract?
Cost Variances
Cost savings, cost avoidance, and Productivity Improvements are examples of what type of cost benefits?
Quantifiable Benefits
In regards to measures of central tendency, what is a mean? A Mode? A Median?
Mean is arithmetic average
Mode is the most frequent score in a distribution of scores
Median is the middle of arrayed values
What does correlation measure?
Measure the degree of relationship between two or more variables`
For a perfect correlation to exist, what would be the coefficient?
1.0
When evaluating a proposed investment or project with costs and benefits occurring not only in the current year but also future years, it is necessary to “bring back today’s dollars” all those costs and benefits. What is the process determining?
Net Present Value of the proposed investment or project
What is used to craft the plans and programs that satisfy the demands of the National Security Strategy within resource constraints, to develop budgets to be submitted to the Congress and manage the execution of those resources?
Planning, Programming, Budgeting, and Execution Process (PPB&E)
What is a systematic method established by the Joint Chiefs of Staff for assessing gaps in military joint warfighting capabilities and recommendation solutions to resolve these gaps?
Joint Capabilities Integration and Development System (JCIDS)
What is the management process that guides all DoD acquisition programs?
Defense Acquisition System
Which DoD Directive is the Defense Acquisition System?
5000.01
What establishes the management framework that implements the Defense Acquisition Program; it emphasizes innovation and flexibility in the acquisition process and focuses on required outcomes and statutory requirements?
DoDI 5000.03: Operation of the Defense Acquisition System
The Defense Acquisition system has how many milestones, phases, and acquisition activites?
3;5;3
What document details the broad, time-phased, operational goals, and a description of the required capabilities to address a specific gap?
Initial Capabilities Document
If a material solution is considered the most appropriated method to resolve an identified gap, what is the next step?
Start Action on an acquisition program as that material solution
What are the three major activities in the Acquisition Management System?
Pre-Systems Acquisition, Systems Acquisition, and Sustainment
What are the five phases of the Acquisition Management System?
1) Materiel Solutions Analysis
2) Technology Development
3) Engineering and Manufacturing Development (EMD)
4) Production and Deployment
5) Operations and Support
What type of appropriation funds can be used for the Materiel Solutions analysis phase?
RDT&E and O&M
What type of appropriation funds can be used for the Technology Development phase?
RDT&E
What type of appropriation funds can be used for the Engineering and Manufacturing Development phase?
RDT&E
What type of appropriation funds can be used for the Production and Deployment phase?
Procurement for the end item system and MILCON for the acquisition of necessary facilities unique to or required for the system involved
Who evaluates the milestones in the Defense Acquisition Management system?
Joint Requirements Oversight Council (JROC) and the Milestone Decision Authority (MDA)
Which milestone of the DoD Acquisition Management System is usually the point at which program initiation occurs?
Milestone B
In which milestone of the DoD Acquisition Management System do you examine alternative concepts to meet a stated mission need?
Milestone A
In which milestone of the DoD Acquisition Management System does a decision authorize the program manager to commence low rate initial production (LRIP) or initial deployment?
Milestone C
What are the five overarching policies that govern all DoD acquisition programs?
1) Flexibility
2) Responsiveness
3) Innovation
4) Discipline
5) Streamlined and Effective Management
True or False:
When Milestone B occurs, the MILDEP or agency is required to have adequate funds in the FYDP to finance the acquisition of the program during this period.
True
What is the preferred DoD strategy for rapid acquisition of mature technology for the user?
Evolutionary Acquisiton
Using which process is Evolutionary Acquisition achieved?
Incremental Development Process
Evolutionary Acquisition requires the collaboration of whom?
1) Warfighter
2) Tester
3) Developer
What is established to determine the level of management review, decision authority, and applicable reporting requirements for a program?
Acquisition Categories (ACAT)
Which ACAT category is used for Major Defense Acquisition Programs (MDAP)?
ACAT I
Estimated by USD (AT&L), the required total expenditures for an ACAT I program is?
RDT&E of more than $365M or Procurement of more than $2.19B
What does ACAT ID and ACAT IC indiciate?
MDA is at Defense level for ID and known as Defense Acquisition Executive (DAE)
MDA is at Component level for IC and known as Component Acquisition Executive (CAE)
What ACAT category is used for Major Automated Information System (MAIS)?
ACAT IA
Estimated by USD (AT&L), the required total expenditures for an ACAT IA program is?
Total cost in any single year in excess of $32M
Total program cost in excess of $126M or
Total life-cycle cost in excess of $378M
To comply with legal requirements, DoDI 5000.02 requires that every acquisition program establish an _________ to document the cost, schedule, and performance objectives and thresholds of that program beginning at program initiation.
Acquisition Program Baseline
the APB should contain only what?
the most important cost, schedule, and performance parameters
Programs goals for an APB consist of what two types of values?
“Objective” Values and “Threshold” Values
In considering program goals, which goals represent specific parameters that the warfighter user desires from the acquisition program?
Objective
In considering program goals, which goals represent the minimum parameters that the warfighter user is willing to accept from the acquisition program?
Threshold
What includes all of the elements of the system from cradle to grave?
Total Systems Approach
What are all of the elements of the Total Systems Approach?
Weapon System (hardware and software) Operators and Maintainers Operational Effectiveness and Suitability Deployment/Fielding Interoperability Training and Training Devices Environmental Impact
If a material solution is considered the best approach to provide the required capability, the next step in the acquisition process is what?
Analysis of Alternatives (AoA)
What is an analytical comparison of the operational effectiveness, suitability, and life cycle costs of alternatives that satisfy established capability needs stated in the approved ICD?
Analysis of Alternatives (AoA)
A sufficient AoA ensure what?
the best, most affordable alternative materiel solution is selected from among the potential solutions.
Who is responsible for preparation of the AoA study guidance?
Director, Cost Assessment and Program Evaluation
The foundation of a sound and credible cost estimate is a well-defined program; it is essential to know the details of what is to constitute that acquisition program in order to prepare a valid estimate of its life cycle cost. The document used to capture that detailed information is known what?
Cost Analysis Requirements Description (CARD)
A CARD shall be prepared for which programs?
ACAT I and ACAT IA
What can be defined as the total cost to the Government of a program over its entire life, including costs for research and development, testing, production, facilities, operations, maintenance, personnel, environmental compliance, and disposal?
Life Cycle Costs
When preparing a cost estimate in which manner must you prepare the estimate and such means that costs are tied to a specific base fiscal year, usually the year the cost estimate was prepared?
Constant Year Dollars
Which costs estimate method is used for programming and budgeting purposes and represent the amounts required when actually used, they reflect the effects of inflation?
Then-Year or Current Year Dollars
What are the three major ways of grouping and viewing program life-cycle cost estimates?
Appropriation Category
Work Breakdown Structure (WBS)
Life Cycle Cost Categories
Which method of grouping life-cycle costs is the greatest interest to the business financial manager of the acquisition program?
Appropriation
Which method of grouping life-cycle costs is the greatest interest program manager and chief engineer of the acquisition program?
Work Breakdown Structure (WBS)
Which method of grouping life-cycle costs should define the total system to be developed or produced; display the total system as a product oriented family tree composed of hardware, software, services, data and facilities; and relate the elements of work to each other and to the end product?
Work Breakdown Structure (WBS)
Major acquisition programs shall tailor a program WBS in accordance with guidance in what?
MIL-STD-881C
Since MIL-STD-881C does not address AIS programs, managers of these programs should develop their own program-specific WBS in consultation with who?
Integrated Product Team (IPT) members
Which method of grouping life-cycle costs is the greatest interest to the cost analyst?
Life Cycle Cost Categories
What are the four different cost categories in the Life Cycle Cost Categories?
Research and Development
Investment
Operations and Support
Disposal
What are the three basic types of cost estimates for ACAT I acquisition programs?
Program Cost Estimate
Component Cost Estimate
Independent Cost Estimate
For ACAT II, ACAT III, ACAT I programs what types of cost estimates normally done?
Program Cost Estimate
Component Cost Estimate
What is defined by 10 USC 2432 as the amount found by dividing the total cost for development and procurement of, and system-specific military construction for, the acquisition program by the number of fully configured end items to be produced for the acquisition program?
Program Acquisition Unit Cost (PAUC)
What is the amount found by dividing the total of funds programmed to be available for obligation for procurement by the number of fully-configured end items to be procured?
Average Procurement Unit Cost (APUC)
PUAC =
RDTE+ Procurement + MILCON / Procurement Quantity
APUC =
Total Procurement/Procurement Quantity
What is based on the principle that the best time to reduce LCC is early in the acquisition process?
Cost as an Independent Variable (CAIV)
Which cost estimating method is based on the direct comparison with historical information of one similar existing activity, system, or component?
Analogy
Which cost estimating method is based on physical attributes or performance characteristics and their relationships to highly aggregated component costs?
Parametric
The parametric approach is also known as what?
Statistical Method or Top Down Method
Which cost estimating method uses a databased of elements from multiple similar systems?
Parametric
How does the parametric method of cost estimating differ from the analogy method?
Makes statistical inferences about Cost Estimating Relationships (CER) between cost and system characteristics
Which cost estimating method is known as the “bottom up,” requires extensive knowledge of system characteristics, and is the most detailed of all techniques and the most costly to implement?
Engineering Method
Which cost estimating method’s strength is that it is very accurate in later stages of Engineering and Manufacturing Development? Also for equipment or systems in current production, it can provide very accurate cost projections?
Engineering Method
Which cost estimating method uses actual costs contracted for or actually incurred on the same system during an earlier period, which are then projected to future events in similar nature?
Actual Cost Method
When should you not use expert opinions when estimating costs?
1) When the time permits the preparation of a more thorough analysis
2) As a convenient substitute for more scientific methods when the use of more scientific methods is possible.
Expert opinions are helpful in which circumstance?
to get a rough order of magnitude (ROM) that can be used as a “sanity check” for an estimate computed by another approach. `
What is a method of narrowing range of expert opinion to achieve consensus and involves querying the expert opinions from a group?
The Delphi Technique
What is a scientific way of determining (predicting) how much learning should occur and applying it to a production estimate?
Learning Curve Theory
Every time the production quantity of a particular tactical missile doubles (for example, from unit number 8 to 16), unit labor-hour cost is reduced how much?
85% to 92% of the previous unit’s labor-hour cost.
Given that the time required to produce unit number 2 is 300 hours and a learning curve rate, determine the labor time (or cost) to produce the “doubled” production unit from the previously given production unit
270 hours for 4 units
243 hours 8 units
Type one of the learning curve application is useful when?
Estimating cost of a production lot of a specific quantity of items planned for a future contract, which is then used for programming and budgeting. It is later used when negotiating the actual contract
Type two of the learning curve application is useful when?
When determining the learning curve rate used by potential contractors and evaluating their price proposals for production contracts.
A contract is valid when there is what?
1) Has been an offer
2) has been an acceptance of that specific offer
3) has been an intent between two or more parties to create a legal relationship
4) the agreement is supported by value consideration
The contracting process is governed by which regulations?
1) Federal Acquisition Regulations (FAR)
2) Defense FAR
What are the two different categories of a contract?
1) Fixed-Price
2) Cost-Reimbursement Contracts
In which category of a contract does the contractor bear the majority of the risk?
Fixed-Price
In which category of a contract does the government bear the majority of the risk?
Cost-Reimbursement Contract
Why does the government bear the risk in a cost-reimbursement contract?
Because if the work turns out to need more money than estimated, the government must pay those allowable, allocable, and reasonable costs
What is an integrated tool that relates technical performance to its associated cost and schedule, measures the work progress in objective terms, and states the value of the work completed in dollars? It is also used to measure contractor performance
Earned Value Management (EVM)
Each work package for Earned Value Management consists of what?
Scope of work and its related budget
The result of the Earned Value Management is known as what?
Budgeted Cost of Work Scheduled (BCWS) also called Performance Measurement Baseline (PMB)
Cost Variance =
Budgeted Cost Work Performed - Actual Cost
A cost variance is favorable when?
Actual costs incurred are less than budgeted costs for the work completed.
Schedule Variance =
Budgeted Cost of Work Performed - Budgeted Cost of Work Scheduled
A schedule variance is favorable when?
Budget for the work performed is greater than the budget for work scheduled
What is a method to analyze the multiple tasks or activities required to complete a given project or contracted work effort?
Program Evaluation and Review Technique (PERT)
PERT analyzes what?
The time required to complete each task and to identify the minimum time needed to complete the total project.
What is the longest possible continuous path from the start event to the terminal event?
Critical Path
What does the Critical Path in the PERT chart indicate?
the total calendar time required to complete all activities of the project.
Which type of chart for useful planning and project scheduling lays out the project in the order in which the tasks need to be completed allows the manager to assess how long a project should take, to manage the dependencies between the activities and to determine the needed resources?
Gantt Chart
True or False:
PERT Chart is better at displaying the schedule and resources used in a project than the Gantt Chart?
False
What is a systematic approach to the problem of choosing the best method of allocating scarce resources to achieve a given objective?
Economic Analysis
In economic analysis all costs and benefits are adjusted to what?
Present Value
What provides the basis for financial planning and decision-making in the Defense Acquisition System, as well as, the expected cost input to the PPBE process?
Cost and Economic Analysis
True or False:
There are no mandated thresholds for using economic analysis for DoD Applications?
True
A threshold of how much applies to construction and thus may be a reasonable threshold to require an economic analysis?
$1 Million
An economic analysis is prepared using ___________ basis in compliance with applicable DoD or component guidance, as well as function program guidance.
Net Present Value
What are benefits that can be assigned a numeric value, such as dollars, physical count of tangible items, or percentage of change?
Quantifiable Benefits
Which type of quantifiable benefits result in the actual reduction of an approved program if the benefit occurs during the POM period?
Cost Savings
Which type of quantifiable benefits result in a reduction or elimination of some future resource requirements? For example: (if the status quo requires the purchase of certain hardware, which has no be included in an approved program, but implementation of the preferred alternative does not require its purchase and does not degrade current capability)
Cost Avoidance
What type of quantifiable benefit result in a reduction in future personnel time and effort requirement associated with a function or assigned task that has been included in an approved program?
Productivity Improvements
What are some examples of non-quantifiable benefits?
Improved Morale, compatibility, improved quality and security, and improved readiness
Benefits that do not have quantitative measure and instead are addressed qualitatively in economic analysis are known as what?
Non-Quantifiable Benefits
What encompasses a large body of scientific theories and methods used to collect and analyze quantitative and qualitative facts to support decision-making and problem-solving processes/
Statistics
What are the two distinct disciplines of statistics?
Descriptive Statistics
Inferential Statistics
What type of statistics describe a collection of quantitative information in a way that is easy to understand and interpret?
Descriptive
What type of statistics tell us things about specific collection of data we have gathered?
Descriptive
What is the arithmetic average of a distribution and is useful for tracking trends in data?
Mean
What is the “middle value” in a list of numbers after sorting the list in increasing order?
Median
What is the most frequent occurring score in a distribution of scores?
Mode
What indicates how data is distributed as a whole?
Measures of Dispersion
Which measure of dispersion is often used to describe the limits of sample of data?
Range
How is a range calculated?
Subtract the smallest number from the largest number
What measure of dispersion is a measure of how a set of values is spread around the mean?
Standard Deviation
By laws of mathematics, what percentage of population when considering measures of dispersion falls within 1 standard deviation of each side?
68.27%
By laws of mathematics, what percentage of population when considering measures of dispersion falls within 2 standard deviations of each side?
95.45%
By laws of mathematics, what percentage of population when considering measures of dispersion falls within 3 standard deviations of each side?
99.74%
Which measure of dispersion includes methods used to examine a sample of a population and make inferences about the entire population based on analysis of the sample data?
Inferential Statistics
What is the formula for percentage change?
((New# - Old#) / Old#) x 100
What is a number between -1 and 1 which measure the degree to which two variables are linearly related?
Correlation Coefficient
If we have a perfect linear relationship (all data points on a straight line) we have a correlation coefficient of _____ for a positive correlation and of ______ for a negative correction and we have strong predictability
1;-1
A correlation coefficient of 0 means what?
There is not a linear relationship between the variables
To obtain the coefficient of correlation of data sets it would be necessary to calculate ______ which can be performed in ________
“Pearson’s r;” Excel
What is the square of “r” or the square of the correlation coefficient, and tells us how reliably the data will fall directly on the “best fit” line?
Coefficient of Determination
When considering the coefficient of determination, the larger the value the _________________.
stronger the relationship
When considering the coefficient of determination values close to 1 indicate what?
Excellent Linear Reliability
What measure the amount of dispersion expressed as a decimal or a percentage? It helps explain how much variability exists between the variables.
Coefficient of Variation
When considering the coefficient of variation the smaller the value (variability) the ____________.
better the predictability
Estimates prepared in constant dollars _________ the changing spending power of the dollar over time because what?
Do not Show; because they must be adjusted for inflation
Who is responsible for developing inflation guidance by appropriation for government estimates?
OMB
What regulation contains inflation guidance and when is it distributed?
OMB Circular A-94; Every January
What is the formula for the present value factor?
PVF = 1/ (1+D)^t
In the PVF “d” represents what?
discount rate
In the PVF “t” represents what?
project year
Net Present Value =
Total PV of Benefits - Total PV of Costs
What is the point (e.g. number of years or fractional years) at which the cumulative costs (investment plus sustainment) of two alternatives equal?
Break-Even Point
Consider an opportunity for a new system that has a $500,000 cost and annual operating cost of $25,000. The proposed system will replace the current capability that has an annual operating cost of $150,000. How much savings will this proposed system generate and how many years will it take for the savings in operating costs to equal the investment cost of the proposed new system?
$500,000 / ($150,000 - $25,000) = 4 years
