BY ORDER OF THE

SECRETARY OF THE AIR FORCE

AIR FORCE INSTRUCTION 65-501

29 OCTOBER 2018

Financial Management

ECONOMIC ANALYSIS

COMPLIANCE WITH THIS PUBLICATION IS MANDATORY

Supersedes: AFI65-501, 29 August 2011

AFI65-509, 19 September 2011

This Instruction implements Air Force Policy Directive 65-5, Cost and Economics. It gives

specific instructions on economic analysis for Air Force management and financial decisions. This

publication applies to individuals and organizations at all levels of the Regular Air Force, Air Force

Reserve and Air National Guard (ANG), who make resource decisions. Ensure all records created

as a result of processes prescribed in this publication are maintained in accordance with Air Force

Manual 33-363, Management of Records, and disposed of in accordance with the Air Force

level requirements in this publication are identified with a Tier (“T-0, T-1, T-2, T-3”) number

following the compliance statement. See AFI 33-360, Publications and Forms Management, for a

description of the authorities associated with the Tier numbers. Submit requests for waivers

through the chain of command to the appropriate Tier waiver approval authority, or alternately, to

the requestor’s commander for non-tiered compliance items.

2 AFI65-501 29 OCTOBER 2018

SUMMARY OF CHANGES

This document has been substantially revised and needs to be completely reviewed. Major changes

include: Air Force Instructions (AFIs) 65-501 and 65-509 have been combined to form one

Instruction; a clarification was added that economic analysis is both an analytical approach to

comparative analysis product for the document resulting from a comparative analysis.

AFI65-501 29 OCTOBER 2018 3

1.1. Introduction. This Instruction applies when making resource decisions. There are always

more requirements than available resources (e.g., manpower, equipment, fuel, facilities).

Furthermore, typically there are competing alternatives by which an objective (e.g., strong national

defense) can be achieved. As such, a systematic process for making decisions based on costs and

benefits is a valuable tool for government decision-makers.

analysis of alternatives). See Figure 1.1.

1.2.1.1. Consistent with DoDI 7041.03, Economic Analysis for Decision-making, analytic

studies that deal with cost and benefit considerations fit under the definition of “economic

analysis” (even though not specifically titled as such) and must adhere to the policy in this

Instruction. (T-1).

1.2.1.2. For the remainder of this Instruction, all the analyses resulting from implementing

the economic analysis approach will be referred to as “comparative analyses” or simply as

“analyses” unless referring to a specific product whose name has been directed at a higher

level (e.g., Product Support Business Case Analysis, Military Construction Economic

Analysis). The document produced as a result of performing a comparative analysis will

4 AFI65-501 29 OCTOBER 2018

Figure 1.1. Economic Analysis Approach and Comparative Analysis.

1.3. Background. The Department of Defense (DoD) and the Air Force define economic analysis

1.3.1. Even though the Air Force has a structured framework for performing economic

analysis, the depth to which the framework is implemented may vary, which will be reflected

in analytical products that vary in their level of rigor.

1.3.2. Some factors which may impact the level of rigor at which the economic analysis

approach should be implemented are: the stage a program or project is in its life cycle, the

level of resources consumed in the project, the level of visibility, and the scope/significance of

the objective.

1.3.3. The economic analysis approach can be applied to any type of decision. Economic

analysis may be applied to very narrow decisions such as where to host a system or what type

of flooring to use in a building. Conversely, economic analysis may be applied to large

strategic resource decisions such as the level of investment the Defense Department should

expend on different capabilities (e.g., Special Forces, Airlift, and Aircraft Carriers).

1.3.4. The economic analysis approach does not replace the judgment of the decision maker,

1.4. Roles and Responsibilities

AFI65-501 29 OCTOBER 2018 5

1.4.1. Deputy Assistant Secretary of the Air Force for Cost and Economics (SAF/FMC)

will:

1.4.1.1. Serve as the office of primary responsibility for Air Force economic analysis.

1.4.1.2. Provide Air Force-wide guidance on economic analysis policy and procedures.

1.4.1.3. Approve comparative analysis instructions developed by Secretariat or Air Staff

functional offices and Major Commands.

1.4.1.4. Review comparative analyses for weapon systems that require approval from the

Defense Acquisition Board, the Air Force Review Board, or equivalent body. For

Acquisition Category I programs, Business System Category I programs, and equivalent

Analysis of Alternatives, may advise the Analysis of Alternatives team, assess the

methodology and rigor of the cost estimate, or may perform an independent estimate of

costs of the alternatives.

1.4.1.7. Review all comparative analyses forwarded to the Secretary of the Air Force, the

Chief of Staff of the Air Force, the Under Secretary of the Air Force, or the Vice Chief of

1.4.1.8. Review comparative analyses that will be forwarded to organizations outside the

Air Force (e.g., Office of the Secretary of Defense, Congress)

organizations.

1.4.1.11. Maintain a site on the Air Force Portal that provides current cost factors and other

economic analysis information.

1.4.1.12. Review and approves/disapproves all requests for waivers from comparative

analysis requirements.

1.4.2. Secretariat and Air Staff Functional Offices will:

1.4.2.1. Decide if a comparative analysis is required or advisable before approving new

initiatives, programs or projects. Functional offices may confer with SAF/FMC to

determine if the issue being examined requires a comparative analysis. For Analysis of

Alternatives, notify SAF/FMC of all efforts for Acquisition Category I programs, Business

System Category I programs, Service Category I Programs and equivalent.

6 AFI65-501 29 OCTOBER 2018

1.4.2.4. Receive comparative analyses from Major Commands, Program Executive

Offices, or Centers. Review the analysis from their functional perspective, and forward

to the Major Command office, Program Executive Office, or Center proposing the project.

Coordinate correspondence between SAF/FMC and the Major Command, Program

Executive Office, or Center.

1.4.2.7. For Air Force Military Construction projects submitted in the President’s Budget

that have not processed through AFIMSC (see paragraph 1.4.3.), ensure there exists either

a comparative analysis that has been completed and certified in accordance with AFMAN

65-506, Economic Analysis, or a waiver to a comparative analysis that has been completed

and coordinated in accordance with AFMAN 65-506.

1.4.2.8. NGB/FMA shall ensure that Air National Guard Military Construction projects

submitted in the President’s Budget include either a comparative analysis that has been

1.4.3. Air Force Installation and Mission Support Center Resource Management Cost

Division AFIMSC/RMC (formerly the Financial Management Center of Expertise) will:

1.4.3.1. Provide support in completing non-acquisition comparative analyses for Air Force

Major Command and installation Financial Management offices.

1.4.3.2. Function as a resource for comparative analysis on-the-job training, as requested,

to installation and Major Command Financial Management offices and functional offices.

1.4.3.3. Submit requests for Resource Management Cost Division support.

1.4.4. Financial Management Offices at the Major Command Level and Center Level

will:

1.4.4.1. Serve as the office of primary responsibility for the economic analysis program

1.4.4.2. Manage the Command's economic analysis program, including, but not limited to,

1.4.4.3. Review and certify comparative analysis products and review and coordinate on

AFI65-501 29 OCTOBER 2018 7

1.4.4.3.1. For programs governed by the DoDI 5000 series (i.e., Weapon System

Acquisition), Center financial management organizations will review and certify

Weapon System Acquisition), Major Command financial management organizations

will review and certify comparative analysis products, and review and coordinate on

requests for waivers.

1.4.4.4. For comparative analysis products required by this instruction and originating at

the Major Command and Center-levels, the Financial Management Office will serve as the

office of primary responsibility for the effort. In this case, the Major Command-level or

Center-level Financial Management Office is fulfilling the role as the Financial

1.4.4.5. At the request of the Major Command Functional Office, perform comparative

Staff counterparts for routing to SAF/FMCE for approval.

analyses initiated at their level involving their functional area. Functional offices should

8 AFI65-501 29 OCTOBER 2018

Military Construction; Unspecified Minor Military Construction; Facilities Sustainment,

Restoration, and Modernization). At a minimum, this must occur before the Air Force

Command Functional Offices, Program Executive Office Program Offices or Sustainment

Offices, but can be any organization.]

analysis approach even though the analysis is not required by this Instruction. Major

AFI65-501 29 OCTOBER 2018 9

1.4.8.1. Will serve as the office of primary responsibility for preparing comparative

analyses required by this Instruction. (T-1). The Force Support Squadron is the office of

Division, the Major Command Financial Management Office and SAF/FMCE should be

used as resources for comparative analysis questions and assistance.

1.4.8.4. The local Senior Financial Manager will sign the Certificate of Satisfactory

Comparative Analysis (see paragraph 1.7) and forwards to the local Functional Office (T-

1).

1.4.8.5. Review and coordinate on, or reject, as appropriate, requests for waivers from a

1.5.3. Required for Working Capital Fund Capital Improvement Program projects with

1.5.4. Required for the Life Cycle Sustainment Plan Annex of an acquisition program. (T-0).

and 5000.74, Defense Acquisition of Services, and/or other applicable DoD and Air Force

1.5.6. Proposing real property new construction or repair projects with an estimated

16 AFI65-501 29 OCTOBER 2018

ESTIMATING MANPOWER COSTS.

3.1. Introduction

business rules to be used in estimating and comparing the full costs of DoD manpower (military

and civilian) and contract support. It applies to all Air Force appropriated fund activities. The

3.2. Costs to Include

3.2.1. Manpower Costs. When answering questions about the costs of manpower for a

specific unit, organization, function, mission, or defense acquisition program, analysts should

report the full costs of both military and civilian DoD manpower. For example, analysts should

acquisition programs. Manpower cost estimates normally address costs to the DoD. However,

in certain cases, analysts may be asked to report full manpower costs to the Federal

Government. The business rules in DoDI 7041.04 address both kinds of requests.

Therefore, Air Force analysts should follow the principles contained within DoDI 7041.04,

while continuing to apply only those burdened costs that are applicable to the decision at hand

and for which data exists. All costs that are incremental (i.e., marginal) to the decision at hand

should be included in the analysis.

3.2.3. Program and Budget Submissions. Policies and procedures for calculating DoD

civilian and military manpower costs for programming and budgeting purposes are established

through separate guidance issued by the Under Secretary of Defense (Comptroller), Title 10,

USC Section 2461, DoD, and the Director of Cost Assessment and Program Evaluation, as

calculate manpower costs for program and budget submissions do not account for the full costs

AFI65-501 29 OCTOBER 2018 17

Attachment 1

References

AFI 33-360, Publications and Forms Management

AFMAN 33-363, Management of Records

AFPD 65-5, Cost and Economics, 5 Aug 08 (certified current 3 Oct 2013)

DoDI 7041.03, Economic Analysis for Decision-making, 9 Sep 2015, Change 1, 2 Oct 2017

AFMAN 65-506, Economic Analysis, 29 Aug 2011

40 USC Section 1401 et seq, Clinger-Cohen Act of 1996

DoDI 5000.02, Operation of the Defense Acquisition System, 7 Jan 2015

DoDI 5000.75, Business Systems Requirements and Acquisition, 2 Feb 2017

DoDI 5000.74, Defense Acquisition of Services, 5 Jan 2016, Change 1, 5 Oct 2017

AFPAM 63-123, Product Support Business Case Analysis, 1 Jun 2017

DoDI 7041.04, Estimating and Comparing the Full Costs of Civilian and Active Duty Military

None

Abbreviations and Acronyms

AFI—Air Force Instruction

AFMAN—Air Force Manual

AFPAM—Air Force Pamphlet

18 AFI65-501 29 OCTOBER 2018

AFPD—Air Force Policy Directive

DoD—Department of Defense

DoDFMR—Department of Defense Financial Management Regulation

DoDI—Department of Defense Instruction

FM—Financial Management

NIST—National Institute of Standards and Technology

NISTIR—National Institute of Standards and Technology Interagency Report

OMB—Office of Management and Budget

Terms

Acquisition Category (ACAT)—Categories established to facilitate decentralized decision

capability needs. It focuses on identification and analysis of alternatives, Measures of

Effectiveness, cost, schedule, concepts of operations, and overall risk, including the sensitivity of

each alternative to possible changes in key assumptions or variables. An Analysis of Alternatives

is a specialized version of a comparative analysis.

Benefits—Results expected in return for costs incurred under a specific alternative. It includes

measures of utility, effectiveness, and performance. Benefits focus on the purpose and the

objective of a project. These may be quantitative or qualitative.

Business Case Analysis—See Comparative Analysis.

Business System—A business system is an information systems that is operated by, for, or on

behalf of the DoD, including: financial systems, financial data feeder systems, contracting systems,

that provides verification that the analysis has been coordinated and adheres to the requirements

in this AFI and AFMAN 65-506.

AFI65-501 29 OCTOBER 2018 19

Community Partnership—Either a Public-Public Partnership or a Public-Private Partnership that

enables the mutually beneficial provision of goods or services and the leveraging of resources and

support a decision on how to allocate scarce resources. A comparative analysis identifies

alternative methods of solving a problem or accomplishing a stated objective, and compares them

by weighing the costs, benefits, and uncertainties (including risks) for each alternative.

Comparative Analysis Product—The document produced as a result of performing a

Dollars.

analysis systematic approach. This resulting document is also referred to as a comparative

analysis.

(SECDEF). Its three parts are the organizations affected, appropriations accounts (Research,

Development, Test, and Evaluation (RDT&E); Operation and Maintenance (O&M); etc.), and the

11 major force programs (strategic forces, mobility forces, Research and Development (R&D),

etc.).

Investment Costs—Costs associated with the acquisition of equipment, real property,

nonrecurring services, nonrecurring operations and maintenance (start- up) costs, and other one-

time outlays.

20 AFI65-501 29 OCTOBER 2018

Life-Cycle Sustainment Plan—Documents life cycle sustainment planning initialized during the

Materiel Solution Analysis (MSA) Phase and the evolution of sustainment planning through the

Product Support Business Case Analysis—The business case analysis required by 10 USC

Section 2337.

lubricants).

Risk—The probability of a loss or injury.

Scarce (Scarcity)—When needs and wants exceed the resources available, requiring people to

all strategic basing processes and actions.

expenditure for goods and services were (are expected to be) made. All Planning, Programming,

Budgeting, and Execution System (PPBES) documents use Then-Year Dollars to properly reflect

the Total Obligation Authority (TOA) that must be appropriated during a specific fiscal year if

sufficient funds are to be available to pay for the goods and services when received. For Air Force

Comptroller purposes, Then-Year Dollars are identical to current dollars; they are known as

nominal or budget dollars. If Then-Year Dollars are written with a specific year (e.g., TY11$),

then those dollars reflect the amount of funding needed if the funds for all goods and services were

obligated in the year specified (e.g., FY 2011 for TY11$).

Uncertainty—The indefiniteness about the outcome of a situation. Uncertainty includes both

risks (i.e., the probability of a loss or injury) and opportunities (i.e., favorable events or outcomes).

AFI65-501 29 OCTOBER 2018 21

Working Capital Fund—Revolving funds within DoD that finance organizations that are

intended to operate like commercial businesses. WCF business units finance their operations with

22 AFI65-501 29 OCTOBER 2018

Attachment 2

NOTE: Where multiple OCRs and OPRs are listed for a task:

* Financial Management is responsible for cost and economic aspects (compliance, data, etc.)