Investment Analysis Using the Portfolio Analysis Machine (PALMA) Tool

Current government acquisition guidelines mandate the development of strategic goals and related capability-based performance measures in making investment decisions. For example, DoD Joint Chief of Staff Instruction CJCSI 3170.01D, March 2004, specifies a new Joint Capabilities Integration and Development System (JCIDS) that “implements a capability-based approach … to identify improvements to existing capabilities and to develop new warfighting capabilities.”

To satisfy these guidelines, investment decisions cannot be made one system at a time, but must address how new candidate systems interact among themselves and complement currently fielded systems in order to achieve the maximum overall effectiveness of the resulting “system of systems” architecture. Thus the choice of an investment portfolio to support a system architecture must be made in the context of an overall mission framework. This approach is also consistent with the Clinger-Cohen Act, which advocates a “portfolio investment process." For example, the Air Force has a need to support a “Time-Sensitive-Targeting" mission by selecting the best combination of sensors, communication links, processing equipment, and weapon systems that, working together, can accomplish the mission most effectively.

The Portfolio AnaLysis MAchine (PALMA) is a tool that can be used to support the JCIDS process. Specifically, it is a computer program that helps decision-makers to select the best portfolio (combination) of investments from a set of potential investment options. The criteria for making the selection are usually cost (some other resource constraint could also be used) and mission-level performance.