Allocating Vendor Risks in the Hanford Waste Cleanup

J. M. Keisler (), W. A. Buehring (), P. D. McLaughlin (), M. A. Robershotte () and R. G. Whitfield ()
Additional contact information
J. M. Keisler: Department of Management Sciences and Information Systems, College of Management, University of Massachusetts Boston, 100 Morrissey Boulevard, M/5-230, Boston, Massachusetts 02125
W. A. Buehring: Decision and Information Sciences Division, Argonne National Laboratory, 9700 South Cass Avenue, Building 900, Argonne, Illinois 60439-4832
P. D. McLaughlin: Pacific Northwest National Laboratory, Richland, Washington 99352
M. A. Robershotte: Pacific Northwest National Laboratory, Richland, Washington 99352
R. G. Whitfield: Decision and Information Sciences Division, Argonne National Laboratory, 9700 South Cass Avenue, Building 900, Argonne, Illinois 60439-4832

Interfaces, 2004, vol. 34, issue 3, 180-190

Abstract: Organizations may view outsourcing as a way to manage risk. We developed a decision-analytic approach to determine which risks the buyer can share or shift to vendors and which ones it should bear. We found that allocating risks incorrectly could increase costs dramatically. Between 1995 and 1998, we used this approach to develop the request for proposals (RFP) for the US Department of Energy's (DOE's) privatization initiative for the Hanford tank waste remediation system (TWRS). In the model, we used an assessment protocol to predict how vendors would react to proposed risk allocations in terms of their actions and their pricing. We considered the impact of allocating each major risk to potential vendors, to the DOE, or to both and identified the risk allocation that would minimize the DOE's total cost—its direct payments to vendors plus the costs of any residual risks it accepted. Allocating inappropriate risks to the vendor would have increased costs because the vendor would add a large risk premium to its bids, while allocating inappropriate risks to the DOE also would have increased costs because the vendor would not take adequate risk-reduction measures. With the improved risk allocation, the RFPs resulted in bids that were acceptable to the DOE.

Keywords: decision analysis; risks; government; agencies (search for similar items in EconPapers)
Date: 2004
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/inte.1040.0078 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:orinte:v:34:y:2004:i:3:p:180-190

Access Statistics for this article

More articles in Interfaces from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().