William Buehring

OR Practice-Selecting a Portfolio of Environmental Programs for a Synthetic Fuels Facility

This article describes how a U.S. Department of Energy steering committee used a decision analysis procedure to develop a portfolio of environmental and health research programs for a commercial-scale synthetic fuels facility. The procedure used information and insights from decision analyses conducted in five technical areas to support decision analysis at the portfolio level. The problem was complex because it included many combinations of studies that could be funded; multiple objectives in the five technical areas, as well as at the portfolio level; and uncertainties about research needs, the availability of technical data, and research costs. The article discusses: the rationale for using formal decision analysis, the main features of the procedure, and how the procedure provided the steering committee with a logical basis for evaluating a large number of diverse technical projects and, with the help of health and environmental experts, established research priorities and budget allocations in a logical and defensible manner.

HOW MANY VENDORS DOES IT TAKE TO SCREW DOWN A PRICE? A PRIMER ON COMPETITION

When creating a private market to provide a public good, government agencies can influence the markets competitive characteristics. Markets have predictable, often counter-intuitive, behaviors. Attempts to foster competition can increase or decrease costs, depending on the specific details of the procurement situation and the specific implementation. We modeled impacts of competition where there are economies of scale and government is obligated to purchase a fixed total quantity of a good. This model estimates cost savings from several alternative plans for a buyer exploring competitive procurement. The results indicate the approximate magnitude of changes in cost that would be associated with changes in the market structure within which such procurement occurs.

Protective measures and vulnerability indices for the Enhanced Critical Infrastructure Protection Programme

Argonne National Laboratory in partnership with the US Department of Homeland Security (DHS) has developed a methodology to systematically evaluate the protection posture and vulnerability of critical infrastructure and key resources (CIKR). This vulnerability methodology is part of a larger effort by DHS called the Enhanced Critical Infrastructure Protection Programme, which seeks to mitigate vulnerabilities, enhance relationships, and improve information sharing between public and private entities. This methodology was constructed to be used in all CIKR sectors and to provide useful results to owners and operators of US facilities. The vulnerability index is also being used to assist DHS in analysing sector and subsector vulnerabilities, to identify potential ways to reduce vulnerabilities, and to assist in preparing sector risk estimates. The owner/operator also receives an analysis of the data collected for a specific asset, which gives an indication of the assets strengths and weaknesses with regard to security.

Allocating Vendor Risks in the Hanford Waste Cleanup

Organizations may view outsourcing as a way to manage risk. We developed a decision-analytic approach to determine which risks the buyer can share or shift to vendors and which ones it should bear. We found that allocating risks incorrectly could increase costs dramatically. Between 1995 and 1998, we used this approach to develop the request for proposals (RFP) for the US Department of Energys (DOEs) privatization initiative for the Hanford tank waste remediation system (TWRS). In the model, we used an assessment protocol to predict how vendors would react to proposed risk allocations in terms of their actions and their pricing. We considered the impact of allocating each major risk to potential vendors, to the DOE, or to both and identified the risk allocation that would minimize the DOEs total cost--its direct payments to vendors plus the costs of any residual risks it accepted. Allocating inappropriate risks to the vendor would have increased costs because the vendor would add a large risk premium to its bids, while allocating inappropriate risks to the DOE also would have increased costs because the vendor would not take adequate risk-reduction measures. With the improved risk allocation, the RFPs resulted in bids that were acceptable to the DOE.

How Many Vendors Does It Take to Screw Down a Price? A Primer on Competition in Procurement

When creating a private market to provide a public good, government agencies can influence the market’s competitive characteristics. Markets have predictable, often counter-intuitive, behaviors. Attempts to foster competition can increase or decrease costs, depending on the specific details of the procurement situation and the specific implementation. We modeled impacts of competition where there are economies of scale and government is obligated to purchase a fixed total quantity of a good. This model estimates cost savings from several alternative plans for a buyer exploring competitive procurement. The results indicate the approximate magnitude of changes in cost that would be associated with changes in the market structure within which such procurement occurs.