The Economic Evaluation of Alternatives

Abstract

This study offers a comprehensive set of approaches for procurement officials to structure public investment decisions. Designed to improve acquisition outcomes, the Economic Evaluation of Alternatives (EEoA) addresses a significant weakness in most contemporary military applications of the current methodology the Analysis of Alternatives (AoAs). While AoAs correctly focus on lifecycle costs and the operational effectiveness of alternatives, affordability is an after-thought at best only implicitly addressed as a weight placed on cost in the final stages of the analysis. In sharp contrast, the EEoA encourages senior analysts and decision-makers to include affordability explicitly and up-front in structuring an AoA. This requires working with vendors to build alternatives based on a reasonable spectrum of possible funding (budget or affordability) scenarios. A key difference between traditional AoAs and the EEoA approach is that instead of modeling competing vendors as points in cost-effectiveness space, the EEoA solicits vendor proposals as functions of optimistic, pessimistic, and most-likely funding (budget) scenarios. The Decision Map offered in the concluding section of this study provides a comprehensive guide to EEoA for practitioners. This study also illustrates how, by embedding affordability directly into an AoA, the EEoA approach provides a unique opportunity for senior leadership to achieve a significant defense acquisition reform to integrate Requirements Generation and Defense Acquisition with the Planning, Programming, and Budgeting System (PPBS), reducing future costs and improving performance and schedules.