Term
- Prepare statement of objective
- List assumptions and constraints
- Identify alternatives
- Identify and estimate benefits and costs
- Rank alternatives using economic measures-of-merit
- Perform sensitivity and risk analyses
- Prepare results and recommendation (Documentation)
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Definition
| Economic analysis of investment alternatives includes the following seven steps? |
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Term
- Describe the problem and requirement
- Define the objective
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Definition
| What two areas does the "Statement of the Objective" cover? |
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Term
- Product or service to be provided
- Measurement system
- Selection criteria
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Definition
| A good objective statement should consist of what three parts? |
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Term
| chance to introduce uncertainty into the study |
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Definition
| What is the affect when listing assumptions which are not absolutely necessary? |
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Term
Assumption - a "given" not a "fact" and generally relates to a future occurrence - boundaries
Constraints - things we know about but do not have the power to change |
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Definition
| What is the principle difference between an Assumption and a Constraint? |
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Term
- Do Nothing or Status quo
- Modification of existing assets, to include renovation, conversion, upgrade, expansion or other forms of improvement of existing assets or services
- Leasing or privatization
- New acquisition
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Definition
| In Step 3, when identifying alternatives, what four alternatives need to be considered as a minimum? |
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Term
- Life Cycle Cost Analysis
- cost Estimating Method
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Definition
| In Step 4, what are two fundamental concepts in determining costs for each alternative? |
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Term
- reflects the sum of non-recurring and recurring costs
- equals the total cost of research and development, investment, operating and support and disposal
- should include all costs to the Government from beginning through termination or salvage point for the entire life of a program or project. |
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Definition
| Explain Life Cycle Costs. |
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Term
Cash Flow Diagram (CFD)
1. assist analyst in selecting an approach in solving time-value-of-money adjustment
2. with simple graphic, they can depict a complex situation |
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Definition
| In Step 5, what provides a graphic represenation of cash receipts and disbursements? |
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Term
| - Amount of dollars that would have to be invested during the base year at the assumed discount (interest) rate to cover the cost or match the revenues on savings at a specific point in the future |
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Definition
| Define Net Present Value in simple terms. |
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Term
- when alternatives have different economic lives
- required when project lifetime is either infinite or indefinite |
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Definition
| When is Uniform Annual Cost (UAC) required over Net Present Value (NPV)? |
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Term
| Sensitivity and Risk Analyses |
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Definition
| In Step 6, _____ and ______ can provide ranges of expected benefits and costs that may provide the decision maker better informaton than a single financial measure. |
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Term
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Definition
| What should the economic analysis report begin with, based on the benefits and costs of the alternatives and an interpretation of the results to include a recommendation of the preferred alternative? |
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Term
| - compares the savings or benefits of an alternative with the investment cost to see if the sum of discounted investments is offset by the sum of discounted savings |
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Definition
| What is the definition of (SIR) Savings Investment Ratio? |
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Term
- steer decision-makers in a better decision
- be invaluable for future program evaluation or for analysis of related programs |
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Definition
| A well-executed EA with good documentation tends to do what? |
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Term
1. Present the alternatives in a listing or ranking from which the ultimate course of action can be selected
2. Make a firm recommendation for the manager's consideration. |
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Definition
| The analyst has two courses of action to facilitate understanding on the part of the decision-maker. |
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Term
| - whether the conclusion of an EA will change if a benefit, cost, or other assumed variable changes |
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Definition
| EA sensitivity analysis (a "what-if" exercise) test what? |
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Term
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Results of the economic analysis do not clearly favor any one alternative
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There is uncertainty about an assumption that can impact the estimate of costs and benefits in the economic analysis
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Definition
| EA sensitivity analysis should be performed for the following 2 reasons? |
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Term
- Net Present Value (NPV)
- Cash Flow Diagram (CFD)
- Equivalent (Uniform) Annual Cost (UAC)
- Savings/Investment Ratio (SIR)
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Definition
| Name 4 preferred Economic Measures-of-Merit that contributes to the understanding of the decision situation? |
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Term
1. Quantifiable
Ex. reduced resource requirements
Improved Data Entry
Improved IT usage
2. Non-quantifiable
Ex. greater versatility
Improve decision-making
better presentation of information
improve timeliness
improve morale
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Definition
| Benefits can be categorized as? |
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Term
Nominal Rate - rate of return that is used for payments that include inflation - nearly all loans
Real Rate - nominal rate adjusted to eliminate the effect of anticipated inflation/deflation and is used for payment that are in terms of stable purchasing power - used to perform EAs with cash flow depicted in constant (base year) dollars. |
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Definition
Interest rates can be depicted in one of two forms:
nominal rate or the real rate. Define both? |
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Term
- renovation
- conversion
- upgrade
- expansion
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Definition
| With EAs, modification of existing assets include which four forms of improvement of existing assets or services? |
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