Value-at-Risk in IT Services Contracts
HICSS '07 Proceedings of the 40th Annual Hawaii International Conference on System Sciences
Introduction to Stochastic Programming
Introduction to Stochastic Programming
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The United States Coast Guard USCG, a part of the U.S. Department of Homeland Security, is the nation's leading agency in maritime security, safety, and stewardship. One of the primary USCG resources is a fleet of boats maritime vessels less than 65 feet in length of various types that must be allocated to USCG stations nationwide. This paper describes the academic-industry collaboration between the authors and the USCG, which resulted in the development of an integer linear programming model that optimally matches supplies of various types of boats to station demands. The paper also introduces a model for the optimal sharing of scarce boat resources. In addition, we generalize our model, using value-at-risk and robust optimization ideas, to manage the risk of boat shortages. The paper reports on the USCG implementation process and discusses internal resistance issues and eventual adoption. We describe USCG modifications to the model recommendations due to practicalities not captured by our model. Finally, we present the significant improvements to USCG quantitative performance metrics that resulted from our model's recommendations. These include a considerable reduction of excess capacity and boat shortages at the stations, a decrease in the overall fleet size with a simultaneous increase in boat utilization, and overall reduction of the fleet operating cost. We also discuss in depth how our model effected these improvements.