b) Depreciation has no effect on cash flow for Government
investments (refer to NAVFAC P-442).
c) Inflation costs are measured in constant dollars, or in terms
of a base year (year 0 of the analysis). When costs of labor and materials
are expected to rise (or lower) with the general inflation rate, no special
treatment of inflation is needed. As stated in para. 126.96.36.199, the use of a
discount factor of 10 percent adjusts for the general inflation rate.
Occasionally, cost estimates need special treatment. For example, oil prices
escalated faster than the general inflation rate in the 1970s. A thorough
treatment of inflation can be found in Chapter VII of NAVFAC P-442.
d) Cost source data should always be documented for each cost
element of the economic analysis. The specific data source, method of data
derivation (if applicable), and an assessment of the accuracy of the cost
element are required (refer to NAVFAC P-442).
Benefits. Benefits are an important consideration in the economic
NAVFAC P-442 specifies four types of benefits:
Direct cost savings
Other quantifiable output measures
Nonquantifiable output measures
Special caution must be taken when evaluating benefits. All potential
benefits must be identified for each alternative and quantified whenever
possible. Unquantifiable benefits must also be identified. A qualitative
statement will provide the decision-maker with additional information.
Document negative aspects as well. Most important, source data should always
be documented. A thorough treatment of benefit documentation can be found in
Chapter V of NAVFAC P-442.
Compare Costs and Benefits and Rank Alternatives. After the costs
and benefits are determined, a comparison of the alternatives should be
produced. Alternatives are to be ranked based on economic desirability.
Perform Sensitivity Analysis. Sensitivity analysis provides
feedback within the economic process (see drawing in para. 13.2). A double
check on the assumptions gives credibility to the final results. It further
refines the assumptions and indicates which values are sensitive to change.
In this way, the decision-maker can be certain that all relevant information
has been considered. A thorough treatment of sensitivity analysis can be
found in Chapter VI of NAVFAC P-442.
Design of Cathodic Protection Systems. Once a facility has been
funded, design alternatives must be examined. Design analysis follows the
economic methodology of Section 13. It is the responsibility of the Navy to