Water resources planning under budgetary uncertainty: The case in Indonesia

Due to the limitations of existing stochastic programming techniques for handling problems of sequential decision making under budgetary uncertainty, a stochastic dynamic programming (SDP) modelling framework is proposed to assist in the planning process under budgetary uncertainty. Probabilities of the funding levels in any time period, defined as a function of time period (stage), level of development, level of previous funding, level of possible decision and level of actual funding, are employed to handle budgetary uncertainty. Sensitivity analysis can then be performed to examine the impact of various changes in the subjectively derived probability assignments on the optimal decisions. Application of the model primarily yeilds an optimal planning policy that recognizes the possibility that the actual funding received is less than the anticipated and therefore the projects being implemented under the anticipated budget are interrupted. However, the model is also able to provide a guide if, for any reason, actual funding at any time period is greater than that anticipated, as long as the budgetary changes are within the range of the projected levels. Furthermore, use of the SDP approach facilitates the application of a detailed optimisation approach for development of the returns at each stage of the SDP. This second level optimisation model can be used to handle other types of uncertainty and multi-objective issues in the overall approach.