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Title: Availability-Based Real Options Approach to Accurately Determine the Cost and Pricing of Performance-Based Logistic Contracts
Authors: Peter Sandborn
N. Goudarzi
X. Lei
A. Kashani-Pour
Keywords: Performance Based Logistics
Remaining Useful Life
Prognostics and Health Management
Issue Date: 23-May-2017
Publisher: Acquisition Research Program
Citation: Published--Unlimited Distribution
Series/Report no.: Performance Based Logistics
Abstract: Performance-based logistics (PBL) is growing in popularity for both governmental and non-governmental acquisitions of critical systems. These contracts allow the customer to buy the performance of the system rather than purchase the system, and/or to buy the availability of the system rather than pay for maintenance. Outcome-based contracts, which include PBL, are highly quantified satisfaction guaranteed contracts where satisfaction is defined by the outcomes received from the system, i.e., the specified performance level or availability. Maintenance planning seeks to predict and optimize when maintenance for a system is performed. Prognostics and Health Management (PHM) provide Remaining Useful Life (RUL) estimates that can be used to plan maintenance. The challenge is how to use the predicted RULs (with their associated uncertainties) and the performance requirements imposed by the outcome-based contracts to optimally plan future maintenance. This research uses a real options approach to optimize maintenance planning under the constraints imposed by outcome-based contract requirements. A simulation-based real options analysis (ROA) approach is used to determine the optimum predictive maintenance opportunity for a system managed via an outcome-based contract. The methodology is applied to individual systems and fleets of systems, and production and non-production systems.
Description: Logistics Management / Grant-funded Research
Appears in Collections:Sponsored Acquisition Research & Technical Reports

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