Comparing Ranking Heuristics for the Productivity Investment Fund Program: A Capital Rationing Problem
Abstract
The purpose of this thesis was to compare two capital rationing heuristics as they apply to the Department of Defense Productivity Investment Fund (PIF) program. Specifically, it addressed the research question: Is the net present value (NPV) of capital investment projects selected using the current DoD method less than the NPV of projects selected using an alternative Carry- over method of project selection? The current Dod method of project selection allows the skipping of economically attractive projects to maximize the use of an annual budget. The alternative Carry-over method would not allow skipping and would carry the funds remaining to the next annual budget without penalty. The larger budget in the subsequent year could allow the funding of a more economically attractive project that might otherwise be skipped. The result may be more long term economic savings to the DoD. The study was performed using a QUATTRO personal computer spreadsheet simulation. Project characteristics were generated based on FY85 PIF data and the process of project selection was performed over a five year period. Annual budgets were kept constant at $150 million (M) except for the funds remaining from the previous years.
Document Details
- Document Type
- Technical Report
- Publication Date
- Dec 01, 1989
- Accession Number
- ADA218191
Entities
People
- Albert F. Spala
Organizations
- Air Force Institute of Technology