Marine Builder's Risk Insurance for the Joint Support Ship Contract – A Utility Theory Approach to Risk Analysis

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Authors
  1. Maybury, D.W.
  2. van Bavel, G.H.
Corporate Authors
Defence R&D Canada - Centre for Operational Research and Analysis, Ottawa ON (CAN);Directorate Materiel Group Operational Research, Ottawa Ont (CAN)
Abstract
The Department of National Defence’s (DND) procurement process for the Joint Support Ships (JSS) requires a quantitative understanding of the Project Management Office’s (PMO) tolerance for risk. By establishing the risk tolerance of the stakeholders, we can place bounds on the requisite amount of insurance for the JSS project. In particular, the acquisition of Marine Builder’s Risk Insurance (MBRI) provides protection for the shipbuilding capital investment during the construction phase. Using utility theory, we obtain decisive results regarding the risk tolerance of the PMO JSS. Our tests yield the necessary statistical significance to reject the hypothesis of risk neutrality and to accept the hypothesis of risk aversion. Using a least-squares best-fit parameterization, we quantify PMO JSS’s risk tolerance which allows us to construct a series of actuarial tables in conjunction with standard loss distributions for rare events. The decision maker can use the actuarial tables with expert opinion to determine the correct level of MBRI required for the JSS project.

Il y a un résumé en français ici.

Keywords
Support to Acq and LCC;Joint Support Ship;Actuarial models;Utility analysis
Report Number
DRDC-CORA-TM-2009-41 — Technical Memorandum
Date of publication
01 Oct 2009
Number of Pages
60
DSTKIM No
CA033170
CANDIS No
532464
Format(s):
Electronic Document(PDF)

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