Risk-Based ROI, Capital Budgeting, and Portfolio Optimization in the Department of Defense https://www.dau.edu
programs or capabilities the DoD should acquire and which projects to eliminate) in every conceivable way such that the objective is maximized (e.g., maximum capabilities, highest expected military value, maximum military utility) or minimized (e.g., cost risk and schedule risk) while still satisfying the constraints (e.g., budget, political, human resources, and other noneconomic resources). Private industry can greatly beneft fromtheconceptsandmethodologies developed in this research to apply portfolio optimization to its respective capital investment portfolios. Obtaining optimal values generally requires that you search in an iterative or ad hoc fashion. This search involves running one iteration for an initial set of values, analyzing the results, changing one or more values, rerunning the model, and repeating the process until you fnd a satisfactory solution. This process can be very tedious and time-consuming even for smallmodels, and often it is not clear how to adjust the values from one iteration to the next. Using the proposed modeling process can eliminate the negatives of searching in an iterative or ad hoc fashion. Research Questions and Objectives The proposed research attempts to answer the following research questions: • Can the DoD perform credible and defensible portfolio optimization on capabilities and programs? • How are military-based defnitions of value created and used in developing optimal portfolios? • What are the best approaches and algorithms that are most amenable to defense acquisition portfolios? The proposed modeling methodology and process to be developed have the following objectives: • Create and model multiple-objective optimization models based on competing stakeholders.
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Defense ARJ, January 2020, Vol. 27No. 1 : 60-107
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