Acquisition Decisions under Operational and Economic Uncertainty – Application of Stochastic Programming to the Vehicle Fleet Mix Problem

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Authors
  1. Asiedu, Y.
Corporate Authors
Defence R&D Canada - Centre for Operational Research and Analysis, Ottawa ON (CAN)
Abstract
The first three phases (design, acquisition and use) of the life cycle of military equipment often span multiple years. Because of the lengths of these phases, the economic and operational environments assumed during the design and acquisition decision process may not be present when the system is delivered or during its use. Variations in economic parameters can lead to cost overruns, and variations in operational environments can lead to system specifications, deemed appropriate during the earlier phases, being inadequate for actual operational requirements. These uncertainties should therefore be accounted for during the design and/or acquisition process. This report discusses how Chance-Constrained Goal Programming can be employed to determine the optimal procurement decision to satisfy operational demands while minimizing the risk of a budget overrun. A model is developed for the selection of an optimal vehicle fleet mix for an operational scenario where the commodity demands and vehicle costs are assumed to be normally distributed. The aim was to determine the optimal fleet capable of satisfying the demands with a given probability while minimizing the potential budget overrun at a given probability level, that is, the Value at Risk (VaR). Three different probability levels (90%, 95% and 99%) for the satisfaction of demand are considered for a VaR at a 95% level.

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Report Number
DRDC-CORA-TM-2011-201 — Technical Memorandum
Date of publication
01 Nov 2011
Number of Pages
50
DSTKIM No
CA036372
CANDIS No
535969
Format(s):
Electronic Document(PDF)

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