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Economic Analysis

ABUS 030

DAU GLOSSARY DEFINITION

A systematic approach to selecting the most efficient and cost-effective strategy for satisfying an agency's need. An EA evaluates the relative worth of different technical alternatives, design solutions, and/or acquisition strategies, and provides the means for identifying and documenting the costs and associated benefits of each alternative to determine the most cost-effective solution. Normally associated with Automated Information System (AIS) acquisition programs.

Alternate Definition
An Economic Analysis (EA) is a systematic approach to selecting the most efficient and cost-effective strategy for satisfying an agency's need. An EA evaluates the relative worth of different technical alternatives, design solutions, and/or acquisition strategies, and provides the means for identifying and documenting the costs and associated benefits of each alternative to determine the most cost effective solution.
General Information

Sometimes an EA can be referred to as a a business case analysis (BCA), cost-benefit analysis (CBA) or several dozen other terms.  Each service or agency tends to use different terms, usually for the purpose of describing different reporting formats and occasionally additional specific information.  The process and basic layout is the same regardless of the name being used.  An EA is a systematic approach to the problem of choosing the best method of allocating resources to achieve a given objective; potentially trading off some objective desires in order to achieve significant cost or time savings.

Per Department of Defense (DoD) Instruction 7041.03, Economic Analysis for Decision Making, October 7, 2017, a complete economic analysis of investment alternatives includes the following elements.

  1. Define the objective.
  2. List assumptions to account for uncertainties.
  3. Identify alternatives.
  4. Analyze costs and benefits.
  5. Analyze costs and benefits.
  6. Compare alternatives.
  7. Perform sensitivity and uncertainty analyses.
  8. Prepare results and recommendations.

It is important to note that economic analysis is a process to aid in making resource allocation decisions. There are many interrelationships among the steps in the process. Rather than performing each step in order to completion, the steps may be revisited during the analysis.

EAs are used for the evaluation of decisions about the acquisition of any product or service. An Analysis of Alternatives (AoA) is a type of EA.

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