Risk-Based ROI, Capital Budgeting, and Portfolio Optimization in the Department of Defense https://www.dau.edu
subsurface), symmetric vs. asymmetric warfare, informational warfare, peacekeeping, humanitarian missions, deterrence, drug interdiction, and others. These specialized areas’ outputs can be obtained using a Delphi method to solicit SME opinions, and their metrics can be obtained and used in the optimizationmodels. Therefore, the portfolio optimization approach introduced can be similarly applied regardless of the metric selected. Operational and Logistics Metrics • Inherent Availability (IA). Measures operational percentage in an ideal support environment per design specifcations. MTBF IA = MTBF+MTTR • Efective Availability (EA). Probability a ship’s system is available at any instant during the maximum operational period, accounting for all critical failures, repairable and nonrepairable at sea, and preventive maintenance. MTTR MT EA = 1– – MDT – 0.5 MTBF+MTTR MT MTTF • Mission Reliability (MR). Operational Ready Rate (ORR) at the start of amission compared to its Inherent Reliability (IR). MR = ORR * IR • Operational Dependability (OD). Probability a system can be used to perform a specifed mission when desired. MTTF OD = MTBF • Mean Down Time (MDT), Mean Maintenance Time (MMT), LogisticsDelayTime (LDT), and their combinations. • Achieved Availability (AA), Operational Availability (OA), Mission Availability (MA). Financial and Economic Metrics • Cost Deterrence and Avoidance. Soft or shadow-revenue (cost savings) over the economic and operational life of the program or system. Milestones A, B, C. • Traditional FinancialMetrics. Net Present Value (NPV), Internal Rate of Return (IRR), Return on Investment (ROI), and other metrics, as long as there are financial and monetary values.
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Defense ARJ, January 2020, Vol. 27No. 1 : 60-107
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