Cost-efficiency analysis of weapon system portfolios

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.

► We develop a methodology to evaluate cost-efficiency of weapon system portfolios.
► Impacts are estimated with a combat simulator to capture interactions among systems.
► We model multiple impact criteria and incomplete information about their importance.
► We develop an algorithm for identifying all cost-efficient portfolios.
► The methodology is illustrated with a case study.