Understanding Enterprise Risk Across an Aquisition Portfolio: A Grounded Theory Approach

Every acquisition program contains risks. But what impact do these risks have on the entire portfolio of acquisition activities? What does risk at the Enterprise level really mean? For example, risk collectively could portend great danger to the acquisition manager’s overall portfolio which might be otherwise masked by traditional program performance and analysis. Alternatively, these risks also might represent opportunities to achieve greater results when analyzed from a portfolio perspective. Initial review of the literature suggests that most leaders are unable to articulate the risk carried by their portfolio of product development activities or what this means to them. However, the same literature suggests they strongly desire this capability. Beginning with a review of the applicable literature in the areas of risk, product development (acquisition) and product portfolio management, portfolio-level risk applications are found to be sparse and ill-conceived. Initial analysis of interviews with portfolio leaders involving military product development activities in portfolios of large, complex, system development will be presented with a discussion of the implications of enterprise risk for product portfolio management

Analysis of Competition in the Defense Industrial Base: An F/A-22 Case Study

Consolidation of the defense industrial base has led to concerns about whether enough competition exists between remaining firms to maintain needed cost reduction and innovation. We examine competition in the U.S. defense industrial base by performing an in-depth case study of Lockheed Martin and the F-22 program that considers multiple tiers of the industrial base. We find that defense firm specialization has led to outsourcing practices and arguably a more robust U.S. defense industrial base. Implications for government policy are identified

Capturing Risk in Capital Budgeting

NPS NRP Technical ReportThis proposed research has the goal of proposing novel, reusable, extensible, adaptable, and comprehensive advanced analytical process and Integrated Risk Management to help the (DOD) with risk-based capital budgeting, Monte Carlo risk-simulation, predictive analytics, and stochastic optimization of acquisitions and programs portfolios with multiple competing stakeholders while subject to budgetary, risk, schedule, and strategic constraints. The research covers topics of traditional capital budgeting methodologies used in industry, including the market, cost, and income approaches, and explains how some of these traditional methods can be applied in the DOD by using DOD-centric non-economic, logistic, readiness, capabilities, and requirements variables. Stochastic portfolio optimization with dynamic simulations and investment efficient frontiers will be run for the purposes of selecting the best combination of programs and capabilities is also addressed, as are other alternative methods such as average ranking, risk metrics, lexicographic methods, PROMETHEE, ELECTRE, and others. The results include actionable intelligence developed from an analytically robust case study that senior leadership at the DOD may utilize to make optimal decisions. The main deliverables will be a detailed written research report and presentation brief on the approach of capturing risk and uncertainty in capital budgeting analysis. The report will detail the proposed methodology and applications, as well as a summary case study and examples of how the methodology can be applied.N8 - Integration of Capabilities & ResourcesThis research is supported by funding from the Naval Postgraduate School, Naval Research Program (PE 0605853N/2098). https://nps.edu/nrpChief of Naval Operations (CNO)Approved for public release. Distribution is unlimited.

Pathways to Defense Budget Reform

Excerpt from the Proceedings of the Nineteenth Annual Acquisition Research SymposiumThe Planning-Programming-Budgeting-Execution (PPBE) process is the most powerful system of incentives affecting acquisition management in the Department of Defense. It is the conduit to money. A key feature of PPBE is the program of record concept that relies on a multi-year planning process. Not only does the program of record hamper technology adoption through adherence to baselines, it creates barriers to interoperability by stovepiping program decisions. Many researchers have detailed the inadequacies of PPBE and the need for embracing a portfolio management approach that aligns with best practices found in commercial and international organizations. This paper dives deeper into the history of how the legislative and executive branches managed defense budget portfolios in the 1960s and before, as well as how PPBE upended those traditional processes. First, it traces the reduction in execution flexibility over time by documenting the budget structure and thresholds for reprogramming. Second, it examines criteria for effective oversight in the PPBE and portfolio settings. The paper concludes that execution flexibility in the form of portfolio budgeting is not only consistent with economic efficiency, it is consistent with United States traditions of congressional control.Approved for public release; distribution is unlimited

Acquisition Management for System of Systems: Requirement Evolution and Acquisition Strategy Planning

Naval Postgraduate School Acquisition Research Progra

Assessing energy security: An overview of commonly used methodologies

This paper provides an overview of methodologies used for quantitative evaluations of security of supply. The studied material is mainly based on peer-reviewed articles and the methodologies are classified according to which stage in the supply chain their main focus is directed to, as well as their scientific background. Our overview shows that a broad variety of approaches is used, but that there are still some important gaps, especially if the aim is to study energy security in a future-oriented way. First, there is a need to better understand how sources of insecurity can develop over time and how they are affected by the development of the energy system. Second, the current tendency to study the security of supply for each energy carrier separately needs to be complemented by comparisons of different energy carrier's supply chains. Finally, the mainly static perspective on system structure should be complemented with perspectives that to a greater extent take the systems' adaptive capacity and transformability into account, as factors with a potential to reduce the systems vulnerabilities. Furthermore, it may be beneficial to use methodological combinations, conduct more thorough sensitivity analysis and alter the mind-set from securing energy flows to securing energy services

Does it actually pay off to be bad rather than good? : Sin stocks, socially responsible investing, and the EU taxonomy

Over the past years, investors’ interest in socially responsible investing (SRI) has increased considerably. Among others, one of the underlying factors for this is that climate change and sustainability topics are increasingly involved in discussions at international policy level. Another factor is the rising amount of information and education that investors have. One of the most common SRI strategies is negative screening, which excludes sin stocks from investment portfolios. However, multiple previous studies provide evidence that sin stocks outperform the market, which has sparked debate over whether sin investing is more profitable than SRI. Moreover, the European Union’s classification system for sustainable activities, the EU taxonomy, was published in 2020, which has sparked discussion about its impact on investors’ profits. The purpose of this thesis is to determine if sin stocks provide higher returns than socially responsible stocks. Another objective is to examine how market downturn affects their performance. Finally, the third objective is to analyze whether excluding the companies in the scope of EU taxonomy has an impact on socially responsible investors’ returns. This paper introduces the concepts and properties of SRI, the EU taxonomy, and sin stocks. Furthermore, this thesis presents previous literature regarding the research topic as well as the relevant financial models and the theoretical framework for measuring stock portfolio performance. The empirical analysis of this paper is performed by constructing six portfolios and by measuring their performance with three distinct asset pricing models. The sample covers stocks included in the STOXX Europe 600 index as of November 2020, and the sample period begins in January 2003 and ends in December 2019. The empirical results suggest that while both sin investing and SRI provide abnormal returns in the long run, sin stocks do not provide statistically significantly higher returns than socially responsible stocks. Moreover, sin stocks do not perform better than socially responsible stocks during an economic crisis. Therefore, profit-seeking investors may include both sin stocks and socially responsible stocks to their portfolios. The third finding suggests that excluding stocks that are currently in the scope of the EU taxonomy negatively affects socially responsible investors’ returns in the long run. Therefore, it is important for investors to carefully analyze whether the stocks could be compliant to the EU taxonomy according to the technical screening criteria and hence be included in the portfolio as sustainable investments. However, the impact of the EU taxonomy on stock returns requires further empirical research.Sijoittajien kiinnostus vastuullista sijoittamista kohtaan on kasvanut huomattavasti viime vuosien aikana. Taustalla on mm. se, että ilmastonmuutos ja vastuullisuus ovat yhä enemmän puheenaiheina kansainvälisen politiikan tasolla. Myös sijoittajien kasvaneella tiedon ja kouluttautumisen määrällä on ollut vaikutusta vastuullisen sijoittamisen suosioon. Tämän myötä tutkijat ovat kiinnostuneet myös syntiosakkeiden, eli paheellisina pidetyillä toimialoilla toimivien yritysten osakkeiden tuotoista. Eräs suosittu vastuullisen sijoittamisen strategia on ns. negatiivinen seulonta, jossa portfoliosta jätetään pois juuri syntiosakkeet. Monet tutkimukset ovat kuitenkin osoittaneet syntiosakkeiden tuottavan markkinoita paremmin, mikä on synnyttänyt keskustelua siitä, joutuvatko vastuulliset sijoittajat tyytymään matalampiin tuottoihin kuin syntiosakkeisiin sijoittavat. Keskustelua on aiheuttanut myös vuonna 2020 julkaistu Euroopan unionin kestävän rahoituksen luokittelujärjestelmä, EU-taksonomia, sekä sen mahdolliset vaikutukset tuottoihin. Tämän tutkielman tavoitteena on vastata edellä mainittuun keskusteluun ja selvittää, voiko syntiosakkeisiin sijoittamalla saada korkeampia tuottoja kuin vastuullisiin sijoituskohteisiin sijoittamalla. Toinen tavoite on tutkia, tuottavatko syntiosakkeet vastuullisia sijoituskohteita paremmin myös rahoitusmarkkinoiden kriisitilanteissa. Kolmas tavoite on selvittää, onko EU-taksonomian piiriin kuuluvien yhtiöiden poissulkemisella vaikutusta vastuullisen sijoittajan tuottoihin. Tutkielmassa avataan vastuullisen sijoittamisen, EU-taksonomian ja syntiosakkeen käsitteitä sekä ominaisuuksia. Lisäksi tutkielmassa esitellään aikaisempia aiheeseen liittyviä tieteellisiä tutkimustuloksia sekä tutkimuksen kannalta tärkeimmät rahoitusteorian mallit ja työkalut riskikorjattujen tuottojen mittaamiseen. Tutkimus suoritetaan kvantitatiivisena tutkimuksena analysoimalla STOXX Europe 600 -indeksiin marraskuussa 2020 kuuluvista osakkeista muodostettujen portfolioiden tuottoja kolmen eri hinnoittelumallin avulla vuosien 2003 ja 2019 välillä. Empiiriset tulokset osoittavat, että sekä syntiosakkeilla että vastuullisilla osakkeilla voi saavuttaa epänormaaleja tuottoja, mutta syntiosakkeet eivät tuota tilastollisesti merkittävästi vastuullisia osakkeita paremmin. Lisäksi tulokset viittaavat siihen, etteivät syntiosakkeet tuota vastuullisia osakkeita paremmin myöskään taloudellisen kriisin aikana. Voittoa tavoitteleva sijoittaja voi siis sisällyttää molempia osakkeita portfolioonsa. Kolmas tutkimustulos viittaa siihen, että EU-taksonomian piirissä olevien yhtiöiden poissulkeminen heikentää vastuullisen sijoittajan tuottoja pitkällä aikavälillä. Tämän perusteella voidaan todeta, että sijoittajien on syytä analysoida tarkoin täyttävätkö taksonomian piirissä olevat yhtiöt annetut kestävyyskriteerit ollakseen taksonomian mukaisia vastuullisia sijoituskohteita. EU-taksonomian vaikutus tuottoihin vaatii kuitenkin lisää tutkimusta tulevaisuudessa, kun tarvittavaa dataa on riittävästi saatavilla

Electricity Restructuring in China: The Elusive Quest for Competition

The continuation of China’s remarkable economic growth will depend on continued increases in electricity supply. China has commenced a program of electricity sector restructuring, with the announced aim of relying on markets and competition to provide incentives for attracting private investment and encouraging efficiency. However, a close examination of the generation markets being created suggests that truly free wholesale prices are likely to be both high and volatile. This may be the reason that these prices have not yet been freed – and it may not bode well for true market liberalization in the future.Electricity Restructuring, Competition, China

Program Management versus Portfolio Management in Defense Acquisition

Program Management / Faculty ReportAcquisition Research Program Sponsored Report SeriesSponsored Acquisition Research & Technical ReportsThis research performed a gap analysis on the existing Department of Defense (DoD) program management competency standards to determine if changes are required to fully adopt product portfolio management (PPM) strategies in defense acquisition. Current DoD program management standards are compared to the Project Management Institute's Portfolio Management Professional certification standards to analyze alignment and gaps between the standards. Barrier to Implementation (BTI) scores are assigned to address the identified gaps in the DoD standard. The study found that the DoD program management competencies are on average 41% aligned with portfolio management industry standards. The DoD program management competencies are least aligned with the portfolio management domains of governance and strategic alignment. The composite BTI score indicates low to medium level of implementation barriers for most of the gaps. Results indicate that the DoD is capable of conducting PPM, and further research is needed to fully align the current competency standards with industry best practices. Defense acquisition senior leaders should consider formulating DoD portfolio management career field functional competencies to address congressional mandates for portfolio management implementation within the DoD.Approved for public release; distribution is unlimited

Program Management Versus Portfolio Management in Defense Acquisition

Excerpt from the Proceedings of the Nineteenth Annual Acquisition Research SymposiumThis research performed a gap analysis on the existing Department of Defense (DoD) program management competency standards to determine if changes are required to fully adopt product portfolio management (PPM) strategies in defense acquisition. Current DoD program management standards are compared to the Project Management Institute’s Portfolio Management Professional certification standards to analyze alignment and gaps between the standards. Barrier to Implementation (BTI) scores are assigned to address the identified gaps in the DoD standard. The study found that the DoD program management competencies are on average 41% aligned with portfolio management industry standards. The DoD program management competencies are least aligned with the portfolio management domains of governance and strategic alignment. The composite BTI score indicates low to medium level of implementation barriers for most of the gaps. Results indicate that the DoD is capable of conducting PPM, and further research is needed to fully align the current competency standards with industry best practices. Defense acquisition senior leaders should consider formulating DoD portfolio management career field functional competencies to address congressional mandates for portfolio management implementation within the DoD.Approved for public release; distribution is unlimited