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Cost-efficiency analysis of weapon system portfolios

  • Kangaspunta, Jussi
  • Liesiö, Juuso
  • Salo, Ahti
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    Decisions about the acquisition and maintenance of military equipment serve to build long-term capabilities in preparation of military conflicts. Typically, these decisions involve large investments which need to be supported by adequate cost-efficiency analyses. Yet the cost-efficiency analysis of weapon systems involves several challenges: for example, it is necessary to account for the possible interactions among different weapon systems; the relevance of several impact criteria; and the variety of combat situations in which these systems may be used. In this paper, we develop a portfolio methodology where these challenges are addressed by evaluating the cost-efficiencies of entire portfolios consisting of individual weapon systems. Our methodology accounts for possible interactions among systems by synthesizing impact assessment results that are either generated by combat simulation models or elicited from experts. It also admits incomplete preference information about the relative importance of different impact criteria. This methodology guides decision making by identifying which combinations of weapon systems are efficient with respect to multiple evaluation criteria in different combat situations at different cost levels. It can also be extended to settings where multiple combat situations are addressed simultaneously. The methodology is generic and can therefore be applied also in civilian settings when portfolios of activities (such as mitigation of harmful environmental emissions) may exhibit interactions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377221712004316
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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 223 (2012)
    Issue (Month): 1 ()
    Pages: 264-275

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    Handle: RePEc:eee:ejores:v:223:y:2012:i:1:p:264-275
    Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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    1. Ahti Salo & Antti Punkka, 2011. "Ranking Intervals and Dominance Relations for Ratio-Based Efficiency Analysis," Management Science, INFORMS, vol. 57(1), pages 200-214, January.
    2. Rogerson, William P, 1990. "Quality vs. Quantity in Military Procurement," American Economic Review, American Economic Association, vol. 80(1), pages 83-92, March.
    3. Peter A. Morris, 1977. "Combining Expert Judgments: A Bayesian Approach," Management Science, INFORMS, vol. 23(7), pages 679-693, March.
    4. Liesiö, Juuso & Salo, Ahti, 2012. "Scenario-based portfolio selection of investment projects with incomplete probability and utility information," European Journal of Operational Research, Elsevier, vol. 217(1), pages 162-172.
    5. Keeney, Ralph L., 1996. "Value-focused thinking: Identifying decision opportunities and creating alternatives," European Journal of Operational Research, Elsevier, vol. 92(3), pages 537-549, August.
    6. Gregory S. Parnell & Harry W. Conley & Jack A. Jackson & Lee J. Lehmkuhl & John M. Andrew, 1998. "Foundations 2025: A Value Model for Evaluating Future Air and Space Forces," Management Science, INFORMS, vol. 44(10), pages 1336-1350, October.
    7. Stanley Stafira, Jr. & Gregory S. Parnell & James T. Moore, 1997. "A Methodology for Evaluating Military Systems in a Counterproliferation Role," Management Science, INFORMS, vol. 43(10), pages 1420-1430, October.
    8. Liesiö, Juuso & Mild, Pekka & Salo, Ahti, 2008. "Robust portfolio modeling with incomplete cost information and project interdependencies," European Journal of Operational Research, Elsevier, vol. 190(3), pages 679-695, November.
    9. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    10. Kim, Soung Hie & Ahn, Byeong Seok, 1999. "Interactive group decision making procedure under incomplete information," European Journal of Operational Research, Elsevier, vol. 116(3), pages 498-507, August.
    11. Salo, Ahti & Punkka, Antti, 2005. "Rank inclusion in criteria hierarchies," European Journal of Operational Research, Elsevier, vol. 163(2), pages 338-356, June.
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