The Economic Evaluation of Alternatives (EEoA): Rethinking the Application of Cost-effectiveness Analysis, Multi-criteria Decision-making (MCDM) and the Analysis of Alternatives (AoA) in Defense Procurement

Abstract

Our primary goal is to improve public investment decisions by providing defense analysts and acquisition officials a comprehensive set of approaches to structure an Economic Evaluation of Alternatives (EEoA). This study identifies a significant weakness in the Multi-criteria Decision-making (MCDM) approach that currently underpins many contemporary AoAs. While MCDM techniques, and therefore most AoAs, correctly focus on lifecycle costs and operational effectiveness of alternatives, Affordability is often only implicitly addressed in the final stages of the analysis. In contrast, the adoption of EEoA encourages decision-makers to include affordability explicitly and up-front in the AoA. This requires working with vendors to build alternatives based on different funding (budget/affordability) scenarios. The key difference between the traditional MCDM approach to AoAs and the EEoA approach is that instead of modeling alternatives from competing vendors as points in cost-effectiveness space, EEoA models alternatives as functions of optimistic, pessimistic, and most likely funding (budget) scenarios. The Decision Map offered to practitioners to structure EEoAs provides a unique opportunity to achieve a significant defense acquisition reform to coordinate the requirements generation system (JCIDS), Defense Acquisition System (DAS), and PPBE process, to lower the costs of defense investments, and improve performance and schedules.