Maximizing the net present value of a project under uncertainty
Journal
European Journal of Operational Research
ISSN
0377-2217
ISSN-Digital
1872-6860
Type
journal article
Date Issued
2010-04-16
Author(s)
Wiesemann, Wolfram
;
Kuhn, Daniel
;
Rustem, Berç
Abstract
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.
Language
English
Keywords
Project scheduling
Net present value
Optimization under uncertainty
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
202
Number
2
Start page
356
End page
367
Pages
12
Subject(s)
Division(s)
Eprints ID
60722