A Policy for Managing Operational Assets to Minimize Deprivation Costs

Abstract

Every year, humanitarian organizations assign a sizable slice of their limited financial resources to procure, operate and maintain operational assets, without which service delivery would be impossible. In this paper, using vehicles as representative of operational assets, we identify policies for sizing and allocating operational capacity to minimize deprivation costs in a humanitarian development context. In the first stage, we develop a stochastic dynamic programming model and show that it is too complex to be solved for medium- and large-size problems. Then, we develop an efficient heuristic policy that considers the interaction of asset purchasing and operating decisions when budget is uncertain. Based on a data set provided by a large international organization, we estimate the parameters of our model to run numerical experiments. Results demonstrate the following: (i) although budget uncertainty increases the deprivation costs and decreases capacity utilization, but its negative impact is mitigated if budget saving between periods is allowed; (ii) a policy to minimize deprivation costs over time may avoid using all available assets in all the periods; (iii) in situations where the differences of criticality of missions are large, both deprivation costs and fleet utilization decrease; and (iv) in most situations, a centralized asset procurement model outperforms a decentralized model in minimizing deprivation costs.

Keywords: Asset Procurement, Fleet Management, Humanitarian Development Programs, Stochastic Dynamic Programming