The purpose of this paper is to study the phenomenon of lapsed funding that occurs within the public sector using the framework of the Newsvendor Problem. Under this framework, we observe that lapsed funding is a natural outcome of the planning system when the financial manager is trying to maximize the value added to his unit. Centralizing control of operating budgets of homogeneous units is shown to reduce lapsed funds and improve their overall performance. | Yugoslav Journal of Operations Research 28 (2018), Number 2, 265–274 DOI: FINANCIAL PLANNING IN THE PUBLIC SECTOR AND THE NEWSVENDOR PROBLEM Jack BRIMBERG Mathematics and Computer Science department, The Royal Military College of Canada Abdalla MANSUR Al Ain University of Science and Technology Al Ain, Abu Dhabi United Arab Emirates Ghaleb A. EL-REFAE Al Ain University of Science and technology Al Ain, Abu Dhabi United Arab Emirates president@ Received: October 2017 / Accepted: April 2018 Abstract: The purpose of this paper is to study the phenomenon of lapsed funding that occurs within the public sector using the framework of the Newsvendor Problem. Under this framework, we observe that lapsed funding is a natural outcome of the planning system when the financial manager is trying to maximize the value added to his unit. Centralizing control of operating budgets of homogeneous units is shown to reduce lapsed funds and improve their overall performance. Keywords: Newsvendor Problem, Lapsed Funds, Public Sector. MSC: 91B02, 91B06, 97M10, 97M40. 1. INTRODUCTION The Newsvendor Problem (NVP), originally known as the Newsboy Problem, is a widely used model in management decision processes. Typically, the vendor or 266 , and / Financial Planning in the Public Sector decision maker wants to determine how much of a particular good to order when demand is uncertain and the good has a limited shelf-life. He must make this decision before demand is realized. Thus, the decision-maker must trade off the costs of having too much supply versus having too little; see . [6, 7, 8] for good reviews of the NVP literature. In this paper we review an interesting application of the NVP to defence spending, which also extends to financial planning in other public sector departments. For a detailed development of the mathematical model, see [3], and [4] for .
