The Economic Evaluation of Alternatives

Abstract

This paper offers a comprehensive set of approaches for procurement officials to structure public investment decisions to improve acquisition outcomes. Called the “Economic Evaluation of Alternatives” (EEoA), these approaches address a significant weakness in most contemporary military “Analyses of Alternatives” (AoAs). While AoAs correctly focus on lifecycle costs and operational effectiveness of alternatives, “affordability” is an after-thought, at best only implicitly addressed in final stages of the analysis. In sharp contrast, EEoA encourages analysts and decisionmakers to include affordability explicitly, and up-front in structuring an AoA. This requires working with vendors to build alternatives based on different funding (budget/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, EEoA solicits vendor offers as functions of optimistic, pessimistic, and most likely funding (budget) scenarios. The Decision Map offered in the concluding section provides a comprehensive guide for practitioners. This paper also illustrates how, by embedding affordability directly into an AoA, EEoA provides a unique opportunity to achieve a significant defense acquisition reform—to coordinate the Requirements Generation System, Defense Acquisition System, and Planning, Programming, and Budgeting System (PPBS), to lower costs, and improve performance and schedules.