Capacity Management and Changing Requirements

Cost Effective Decision Making in an Uncertain World

by Haralambos Theologis

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Abstract

Throughout the history of Air Force strategic airlift, changing national security needs have shaped the required amount of capacity the fleet must be able to provide combatant commanders. As the requirement has varied, force planners have acted to meet it through acquisition or divestment of aircraft. Currently, the Air Force faces a problem of excess capacity with the fleet able to provide more airlift than needed under the requirement provided by MCRS-16. In response to the excess capability, policy makers have decided to retire C-5As with remaining service life. In a static world, this makes sense but uncertainty about the future means that a requirement increase at some point is almost a certainty. Given the likelihood of a requirement change, it may be rational to hold on to some or all of the excess. Then, if the requirement were to increase in the future, available aircraft may be used rather than procuring additional capacity.

This dissertation explores other options for dealing with excess capacity and their relative cost effectiveness. It does so by modeling future requirements with geometric Brownian motion and considering alternatives like keeping aircraft in an inviolate storage state or maintaining them in the active inventory. It further assesses how near term decisions by policy makers, like keeping the C-17 line open or closed, affect long term costs.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Background

  • Chapter Three

    Literature Review

  • Chapter Four

    Methods

  • Chapter Five

    Results

  • Chapter Six

    Conclusions, Policy Recommendations, & Further Research

  • Appendix A

    Model Flow Chart

  • Appendix B

    Example Code

  • Appendix C

    Example Fleet Used in Code (C-17 Only)

This document was submitted as a dissertation in September 2013 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Chris Mouton (Chair), Michael Kennedy, and Thomas Light.

This report is part of the RAND Corporation dissertation series. PRGS dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a PRGS faculty committee overseeing each dissertation.

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