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Portfolio Decision Analysis: Lessons from Military Applications

In: Portfolio Decision Analysis

Author

Listed:
  • Roger Chapman Burk

    (US Military Academy, West Point)

  • Gregory S. Parnell

    (US Military Academy, West Point)

Abstract

We review the use of portfolio decision analysis in military applications, such as weapon systems, types of forces, installations, and military research and development projects. We start by comparing military and commercial portfolio problems in general, discussing the distinguishing characteristics of the military decision environment: hostile and adaptive adversaries, a public decision process with multiple stakeholders, and high system complexity. Then we list and summarize 24 military DA applications published from 1992 to 2010. We find that the most widespread prominent feature of these applications is the careful modeling of value from multiple objectives. Mathematical optimization is not so common, but it can be important when a large number of interdependencies or side constraints makes it hard to find good feasible candidate portfolios. Quantitative methods of accounting for risk are surprisingly rare, considering the high level of uncertainty in the military environment. We analyze six of the applications in more detail, looking at how they model portfolio value calculation, swing weight assessment, constraints and dependencies, and uncertainty and risk. An appendix provides a recommended procedure for portfolio decision analysis based on the authors’ experience and the applications reviewed.

Suggested Citation

  • Roger Chapman Burk & Gregory S. Parnell, 2011. "Portfolio Decision Analysis: Lessons from Military Applications," International Series in Operations Research & Management Science, in: Ahti Salo & Jeffrey Keisler & Alec Morton (ed.), Portfolio Decision Analysis, chapter 0, pages 333-357, Springer.
    • Handle: RePEc:spr:isochp:978-1-4419-9943-6_14
    DOI: 10.1007/978-1-4419-9943-6_14
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    Citations

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    Cited by:

    1. Kangaspunta, Jussi & Liesiö, Juuso & Salo, Ahti, 2012. "Cost-efficiency analysis of weapon system portfolios," European Journal of Operational Research, Elsevier, vol. 223(1), pages 264-275.
    2. Gregory S. Parnell & Rudolph E. Butler & Stephen J. Wichmann & Mike Tedeschi & David Merritt, 2015. "Air Force Cyberspace Investment Analysis," Decision Analysis, INFORMS, vol. 12(2), pages 81-95, June.
    3. 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.
    4. Kurth, Margaret & Keisler, Jeffrey M. & Bates, Matthew E. & Bridges, Todd S. & Summers, Jeffrey & Linkov, Igor, 2017. "A portfolio decision analysis approach to support energy research and development resource allocation," Energy Policy, Elsevier, vol. 105(C), pages 128-135.

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