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Analyzing operational risk-reward trade-offs for start-ups

Basu, P, Nair, S.K. (2015) Analyzing operational risk-reward trade-offs for start-ups. European Journal of Operational Research, 247 (2). pp. 596-609. ISSN 0377-2217. (doi:10.1016/j.ejor.2015.06.003) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:92974)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
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In many managerial situations it is important to consider both risk and reward simultaneously. This is a challenging task using standard techniques that are applied for solving sequential stochastic optimization problems since these techniques are designed to consider only one objective at a time - either maximizing reward or minimizing risk. In applications such as operational decisions for start-ups, this can be particularly restricting, since managers need to make trade-offs between profitability driven growth and the risk of bankruptcy. We extend in several ways prior work that has addressed the inventory issue for start-ups to minimize the risk of bankruptcy. The primary contribution of this paper is to present a novel approach to track mean as well as variance of a set of policies in a dynamic stochastic programming model and using the mean-variance solutions in a simple heuristic for creating efficient risk-reward frontiers. This is a challenging task from an implementation standpoint, since this requires carrying information on both risk and reward simultaneously for each state, which standard stochastic programming solution methods are not designed to do. We also illustrate the use of our methodology in a richer model of start-up operations where, in addition to inventory issues, advertising decisions are also considered. © 2015 Elsevier B.V. and Association of European Operational Research Societies(EURO)with in the International Federation of Operational Research Societies(IFORS).All rights reserved.

Item Type: Article
DOI/Identification number: 10.1016/j.ejor.2015.06.003
Uncontrolled keywords: Efficient frontiers, Heuristic, Risk-reward, Start-up operations, Variance Retentive Stochastic Programming, Commerce, Dynamic programming, Economic and social effects, Heuristic programming, Managers, Optimization, Stochastic programming, Stochastic systems, Efficient frontier, Heuristic, Operational decisions, Operational risks, Primary contribution, Programming solutions, Stochastic optimization problems, Stochastic programming model, Stochastic models
Subjects: H Social Sciences
Divisions: Divisions > Kent Business School - Division > Department of Analytics, Operations and Systems
Depositing User: Tracey Pemble
Date Deposited: 31 Jan 2022 14:23 UTC
Last Modified: 17 Aug 2022 11:02 UTC
Resource URI: (The current URI for this page, for reference purposes)
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