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Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems. 7 July 2009 23 rd European Conference on Operational Research in Bonn Jussi Kangaspunta, Juuso Liesiö and Ahti Salo Systems Analysis Laboratory Helsinki University of Technology P.O. Box 1100, 02015 TKK, Finland

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Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

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  1. Portfolio Analysis in theCost-Efficiency Evaluation of Weapon Systems 7 July 2009 23rd European Conference on Operational Research in Bonn Jussi Kangaspunta, Juuso Liesiö and Ahti Salo Systems Analysis Laboratory Helsinki University of Technology P.O. Box 1100, 02015 TKK, Finland firstname.lastname@tkk.fi

  2. Challenges in the Evaluation of Weapon Systems • Cost-efficiency of weapon systems depends on both impacts and costs • Several impact dimensions must be accounted for • Enemy and own casualties, mission success probability, combat duration etc. • Impacts depend on the context • Mission (attack/defense), weather conditions, enemy strategies etc. • There are strong interactions among weapon systems • How should joint impacts be attributed to constituent systems ? • Earlier research mainly focused on individual systems • Impacts are often non-linear • 16 artillery guns may not be twice as effective as 8 guns Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  3. Impact Assessment Model • Estimates from an independent combat simulator of Defense Forces • Operating situation with pre-specified enemy, terrain, mission and strategies • Some of own forces kept at a constant level but others are varied • Numerous simulations with different portfolios of selected weapon systems • Simulation results could be extended by appropriate mathematical methods (e.g. interpolation) Combat simulator Operating situation Criterion 1 Overall impact of the portfolio Impact model Criterion 2 Own forces portfolio Enemy ... Criterion n Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  4. Modeling of Weapon Systems • Weapon system portfolio = number of different weapon systems = number of weapon systems of the jth type in portfolio = cost of portfolio • Feasible portfolios satisfy all relevant constraints • E.g. budget constraints, logical constraints (incompatibilities etc.) • Impact assessment criteria • Portfolios evaluated with regard to different impact criteria (enemy casualties, own casualties etc.) • Overall impacts approximated by an additive value function Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  5. Incomplete Information and Dominance • Instead of point-estimate criterion weights, a set of feasible weights • E.g. rank-ordering for criterion importance • Portfolio x1 dominates x2if it has greater or equal overall impact for all feasible weights Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  6. Cost-Efficient Portfolios • Feasible portfolios that are not dominated by any less or equally expensive portfolio Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  7. Numerical Example Based on Realistic Data • Three weapon systems • Only unit costs • Three impact criteria measuring different types of enemy casualties • Incomplete information on the value (i.e. relevance) of the impacts • Analysis of different budget levels with a focus on cost-efficient portfolios Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  8. Simulated and Interpolated Impact Functions Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  9. Impacts of Weapon System Portfolios Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  10. Composition of Cost-Efficient Portfolios Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  11. Conclusions • Portfolio approach is necessitated by strong interactions • Evaluation of individual weapon systems makes little sense • These interactions are captured by the combat simulator results • Multi-criteria model aggregates several impact dimensions • Contextual importance of impacts captured through incomplete information • Cost-efficiency depends on both impacts and costs • Focus on the computation of cost-efficient portfolios Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  12. References Brown, G.G., Dell, R.F., Newman, A.M. (2004). Optimizing Military Capital Planning, Interfaces Vol. 34, No. 6, pp. 415-425. Bunn, D.W., Salo, A.A. (1993). Forecasting with Scenarios, European Journal of Operational Research, Vol. 68, pp. 291-303. Fox, P. (1965). A Theory of Cost-Effectiveness for Military Systems Analysis, Operations Research, Vol. 13, No. 2, pp. 191-201. Liesiö, J., Mild, P., Salo, A. (2007) Preference Programming for Robust Portfolio Modeling and Project Selection,European Journal of Operational Research, Vol. 181., No. 3., pp. 1488-1505. Liesiö, J., Mild, P., Salo, A. (2008) Robust Portfolio Modeling with Incomplete Cost Information and Project Interdependencies, European Journal of Operational Research, Vol. 190, pp. 679-695. Stafira, S., Parnell, G., Moore, J., (1997). A Methodology for Evaluating Military Systems in a Counterproliferation Role, Management Science, Vol. 43, No. 10, pp. 1420-1430. Parnell, G., et. al. (1998). Foundations 2025: A Value Model for Evaluating Future Air and Space Forces,Management Science, Vol. 44, No. 10, pp. 1336-1350. Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  13. Questions and Comments ? Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  14. Extensions and Further Research • Considering multiple operating situations • Cost-efficiency is highly context dependent • Can be integrated to model for instance using probabilities • Risk and/or robustness measures for portfolios can be formed • Complementing simulation data with expert evaluations • Simulations can be augmented with judgmental expert evaluations of impacts • Experimental design of simulations and/or expert evaluations • Considering cost-efficiency using core indices • “What proportion of evaluations supports that a given portfolio is cost-efficient?” • “What proportion of possible operating situations supports that a given portfolio is cost-efficient?” Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  15. Multiple Operating Situations p1 Overall expected impact of portfolio Weapon system portfolio p2 ... ... pm Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  16. Cost-Efficiency Using Core Indices 1/2 Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

  17. Cost-Efficiency Using Core Indices 2/2 Kangaspunta, Liesiö and Salo: Portfolio Analysis in the Cost-Efficiency Evaluation of Weapon Systems

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