Risk-Based ROI, Capital Budgeting, and Portfolio Optimization in the Department of Defense https://www.dau.edu
Figure 7 shows the results of Portfolio Optimization 1, which assumes a budget of $4.0 million, Portfolio Size ≤ 7, and the goal of Maximizing Portfolio NPV. In this simple optimization, the model recommends excluding CCOPS, SSDS, NIFC-CA, and CIWS-CEC from the portfolio. Figure 8 shows PortfolioOptimization2, which runs an Investment Efcient Frontier. It assumes a budgetary range of $2.5–$5.0millionwith a step size of $500,000. It also assumes a Portfolio Size ≤ 7 and the explicit goal of Maximizing Portfolio NPV. Weather, SPQ-9B, RDDL, and SM-2 BLK were consistently in the optimal portfolio. Based on budget, other capabilities were recommended. Above $4.5 million, the portfolio remains unchanged.
FIGURE 7. PORTFOLIO OPTIMIZATION 1
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Defense ARJ, January 2020, Vol. 27No. 1 : 60-107
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