Maximizing the net present value of a project under uncertainty

We address the maximization of a project’s expected net present value when the activity durations and cash flows are described by a discrete set of alternative scenarios with associated occurrence probabilities. In this setting, the choice of scenario-independent activity start times frequently leads to infeasible schedules or severe losses in revenues. We suggest to determine an optimal target processing time policy for the project activities instead. Such a policy prescribes an activity to be started as early as possible in the realized scenario, but never before its (scenario-independent) target processing time. We formulate the resulting model as a global optimization problem and present a branch-and-bound algorithm for its solution. Extensive numerical results illustrate the suitability of the proposed policy class and the runtime behavior of the algorithm.


Published in:
European Journal of Operational Research, 202, 2, 356-367
Year:
2010
Publisher:
Elsevier
ISSN:
0377-2217
Keywords:
Laboratories:




 Record created 2014-01-21, last modified 2018-03-17

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