Prioritizing project selection

Ali Koc, David P. Morton, Elmira Popova, Stephen M. Hess, Ernie Kee, Drew Richards

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

Abstract

We consider capital investments under uncertainty. A typical approach to this problem, when the problem parameters are assumed known, is via a multi-knapsack model. This model takes as input annual budgets as well as the cost streams and profit-i.e., net present value (NPV)-of each project. Its output is a portfolio of projects with the highest total NPV, observing yearly budget constraints. We argue that such a portfolio fails to hedge against uncertainties in the budgets, the cost streams, and the profits. As an alternative, we propose a model that forms an optimal priority list of projects, incorporating multiple scenarios for these input parameters. We apply our approach to two sets of example projects from the South Texas Project Nuclear Operating Company.

Original languageEnglish (US)
Pages (from-to)267-297
Number of pages31
JournalEngineering Economist
Volume54
Issue number4
DOIs
StatePublished - Oct 2009

ASJC Scopus subject areas

  • Education
  • Economics and Econometrics
  • Engineering(all)

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