TY - JOUR
T1 - Prioritizing project selection
AU - Koc, Ali
AU - Morton, David P.
AU - Popova, Elmira
AU - Hess, Stephen M.
AU - Kee, Ernie
AU - Richards, Drew
N1 - Funding Information:
The authors thank two anonymous referees for helpful comments that improved the article. This research was supported by the Electric Power Research Institute under contract EP-P22134/C10834, STPNOC under grant B02857, and the National Science Foundation under grants CMMI-0457558, CMMI-0653916, and CMMI-0855577. Abbreviated versions of this article have appeared in Koc¸ et al. (2007, 2008).
PY - 2009/10
Y1 - 2009/10
N2 - 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.
AB - 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.
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U2 - 10.1080/00137910903338545
DO - 10.1080/00137910903338545
M3 - Article
AN - SCOPUS:77951452657
VL - 54
SP - 267
EP - 297
JO - Engineering Economist
JF - Engineering Economist
SN - 0013-791X
IS - 4
ER -