Military Cost-Benefit Analysis: Introducing Affordability in Vendor Selection Decisions
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Authors
Melese, Francois
Richter, Anke
Simon, Jay
Subjects
Affordability
Affordability, Attribute Bundles, Measure of Performance, Vendor Selection
Affordability, Attribute Bundles, Measure of Performance, Vendor Selection
Advisors
Date of Issue
2011-04-30
Date
30-Apr-11
Publisher
Monterey, California. Naval Postgraduate School
Language
Abstract
This study extends previous research by the authors that focuses on the growing global challenge of affordability. Ballooning public debt burdens are forcing countries around the world to rethink their approaches to procurement decisions. This paper offers a new approach to government vendor selection decisions in major public procurements. A key challenge is for government purchasing agents to select vendors that deliver the best combination of desired non-price attributes at realistic funding levels. The mechanism proposed in this paper is a three-stage, multiattribute, sealed-bid procurement auction. It extends traditional price-only auctions to one in which competition takes place exclusively over attribute bundles. The model reveals benefits in public procurements by defining an alternative in terms of its value to the buyer over a range of possible expenditures, rather than as a single point in budget-value space. This approach leads to some interesting results. In particular, it suggests that in a fiscally constrained environment, the traditional approach of eliminating dominated alternatives could lead to sub-optimal decisions. The final extension of the model explicitly examines the buyer''s decision problem under budget uncertainty. The result is in a new metric proposed to evaluate vendors: an expected utility measure of performance.
Type
Report
Description
Proceedings Paper (for Acquisition Research Program)
Series/Report No
Department
Organization
Identifiers
NPS Report Number
NPS-AM-11-C8P24R02-078
Sponsors
Acquisition Research Program
Funding
Format
Citation
Distribution Statement
Approved for public release; distribution is unlimited.
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.