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On Maximizing the Net Present Value of a Project Under Renewable Resource Constraints

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  • Mario Vanhoucke

    () (Operations Management Group, Department of Applied Economics, Katholieke Universiteit Leuven, Naamsestraat 69, B-3000 Leuven, Belgium)

  • Erik Demeulemeester

    () (Operations Management Group, Department of Applied Economics, Katholieke Universiteit Leuven, Naamsestraat 69, B-3000 Leuven, Belgium)

  • Willy Herroelen

    () (Operations Management Group, Department of Applied Economics, Katholieke Universiteit Leuven, Naamsestraat 69, B-3000 Leuven, Belgium)

Abstract

In this paper we study the resource-constrained project-scheduling problem with discounted cash flows. Each activity of this resource-constrained project-scheduling problem has certain resource requirements and a known deterministic cash flow that can be either positive or negative. Deterministic cash flows are assumed to occur over the duration of the activities. Progress payments and cash outflows occur at the completion of activities. The objective is to schedule the activities subject to a fixed deadline to maximize the net present value subject to the precedence and resource constraints. With these features the financial aspects of project management are taken into account.We introduce a depth-first branch-and-bound algorithm that makes use of extra precedence relations to resolve a number of resource conflicts and a fast recursive search algorithm for the max-npv problem to compute upper bounds. The recursive search algorithm exploits the idea that positive cash flows should be scheduled as early as possible while negative cash flows should be scheduled as late as possible within the precedence constraints. The procedure has been coded in Visual C++, Version 4.0 under Windows NT, and has been validated on two problem sets.

Suggested Citation

  • Mario Vanhoucke & Erik Demeulemeester & Willy Herroelen, 2001. "On Maximizing the Net Present Value of a Project Under Renewable Resource Constraints," Management Science, INFORMS, vol. 47(8), pages 1113-1121, August.
  • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:8:p:1113-1121
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    File URL: http://dx.doi.org/10.1287/mnsc.47.8.1113.10226
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    References listed on IDEAS

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    1. Herroelen, Willy S. & Gallens, Els, 1993. "Computational experience with an optimal procedure for the scheduling of activities to maximize the net present value of projects," European Journal of Operational Research, Elsevier, vol. 65(2), pages 274-277, March.
    2. Erik Demeulemeester & Willy Herroelen, 1992. "A Branch-and-Bound Procedure for the Multiple Resource-Constrained Project Scheduling Problem," Management Science, INFORMS, vol. 38(12), pages 1803-1818, December.
    3. Herroelen, Willy S. & Van Dommelen, Patrick & Demeulemeester, Erik L., 1997. "Project network models with discounted cash flows a guided tour through recent developments," European Journal of Operational Research, Elsevier, vol. 100(1), pages 97-121, July.
    4. Erik L. Demeulemeester & Willy S. Herroelen, 1997. "New Benchmark Results for the Resource-Constrained Project Scheduling Problem," Management Science, INFORMS, vol. 43(11), pages 1485-1492, November.
    5. Rainer Kolisch & Arno Sprecher & Andreas Drexl, 1995. "Characterization and Generation of a General Class of Resource-Constrained Project Scheduling Problems," Management Science, INFORMS, vol. 41(10), pages 1693-1703, October.
    6. Elmaghraby, Salah E. & Herroelen, Willy S., 1990. "The scheduling of activities to maximize the net present value of projects," European Journal of Operational Research, Elsevier, vol. 49(1), pages 35-49, November.
    7. Anthony A. Mastor, 1970. "An Experimental Investigation and Comparative Evaluation of Production Line Balancing Techniques," Management Science, INFORMS, vol. 16(11), pages 728-746, July.
    8. Etgar, Ran & Shtub, Avraham & LeBlanc, Larry J., 1997. "Scheduling projects to maximize net present value -- the case of time-dependent, contingent cash flows," European Journal of Operational Research, Elsevier, vol. 96(1), pages 90-96, January.
    9. Oya Icmeli & S. Selcuk Erenguc, 1996. "A Branch and Bound Procedure for the Resource Constrained Project Scheduling Problem with Discounted Cash Flows," Management Science, INFORMS, vol. 42(10), pages 1395-1408, October.
    10. De Reyck, Bert & Herroelen, willy, 1998. "A branch-and-bound procedure for the resource-constrained project scheduling problem with generalized precedence relations," European Journal of Operational Research, Elsevier, vol. 111(1), pages 152-174, November.
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    Cited by:

    1. repec:pal:jorsoc:v:58:y:2007:i:8:d:10.1057_palgrave.jors.2602244 is not listed on IDEAS
    2. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "The comparison of investment behaviors of Kazakhstani and German farmers: An experimental approach," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134770, Agricultural Economics Society.
    3. repec:eee:ejores:v:267:y:2018:i:3:p:835-848 is not listed on IDEAS
    4. Domingo A. Tarzia, 2016. "Properties of the financial break-even point in a simple investment project as a function of the discount rate," Papers 1611.03740, arXiv.org.
    5. Mario Vanhoucke, 2002. "Optimal due date assignment in project scheduling," Vlerick Leuven Gent Management School Working Paper Series 2002-19, Vlerick Leuven Gent Management School.
    6. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Comparison of the Investment Behavior of German and Kazakhstani Farmers: an Experimental Approach," Discussion Papers 122422, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    7. repec:pal:jorsoc:v:56:y:2005:i:1:d:10.1057_palgrave.jors.2601801 is not listed on IDEAS
    8. Vanhoucke, M., 2006. "A scatter search procedure for maximizing the net present value of a project under renewable resource constraints," Vlerick Leuven Gent Management School Working Paper Series 2006-40, Vlerick Leuven Gent Management School.
    9. Cheung, Grace & Davies, Peter J. & Trück, Stefan, 2016. "Financing alternative energy projects: An examination of challenges and opportunities for local government," Energy Policy, Elsevier, vol. 97(C), pages 354-364.
    10. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Comparison of the investment behavior of Kazakhstani and German farmers: An experimental approach," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125218, International Association of Agricultural Economists.
    11. Bogumila Krzeszowska, 2013. "Three step procedure for a multiple criteria problem of project portfolio scheduling," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 4, pages 55-74.
    12. repec:eee:ejores:v:261:y:2017:i:3:p:1001-1012 is not listed on IDEAS
    13. Hartmann, Sönke & Briskorn, Dirk, 2010. "A survey of variants and extensions of the resource-constrained project scheduling problem," European Journal of Operational Research, Elsevier, vol. 207(1), pages 1-14, November.
    14. Leyman, Pieter & Vanhoucke, Mario, 2017. "Capital- and resource-constrained project scheduling with net present value optimization," European Journal of Operational Research, Elsevier, vol. 256(3), pages 757-776.
    15. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Experimental examination of land investment decisions with volatile returns A comparison between Kazakhstani and German farmers," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122454, European Association of Agricultural Economists.
    16. M. Vanhoucke, 2007. "An electromagnetic time/cost trade-off optimization in project scheduling," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/457, Ghent University, Faculty of Economics and Business Administration.
    17. M. Vanhoucke, 2004. "Work Continuity Constraints In Project Scheduling," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/265, Ghent University, Faculty of Economics and Business Administration.
    18. He, Zhengwen & Xu, Yu, 2008. "Multi-mode project payment scheduling problems with bonus-penalty structure," European Journal of Operational Research, Elsevier, vol. 189(3), pages 1191-1207, September.
    19. He, Zhengwen & Wang, Nengmin & Jia, Tao & Xu, Yu, 2009. "Simulated annealing and tabu search for multi-mode project payment scheduling," European Journal of Operational Research, Elsevier, vol. 198(3), pages 688-696, November.
    20. Dayal Madhukar & Verma, Sanjay, 2015. "Exact Procedures for Non-Regular Measures of the Multi-Mode RCPSP," IIMA Working Papers WP2015-03-06, Indian Institute of Management Ahmedabad, Research and Publication Department.
    21. M. Vanhoucke, 2006. "An efficient hybrid search algorithm for various optimization problems," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/365, Ghent University, Faculty of Economics and Business Administration.
    22. Broos Maenhout & Mario Vanhoucke, 2016. "An exact algorithm for an integrated project staffing problem with a homogeneous workforce," Journal of Scheduling, Springer, vol. 19(2), pages 107-133, April.
    23. Vanhoucke, Mario & Demeulemeester, Erik & Herroelen, Willy, 2003. "Progress payments in project scheduling problems," European Journal of Operational Research, Elsevier, vol. 148(3), pages 604-620, August.
    24. Chen, Jiaqiong & Askin, Ronald G., 2009. "Project selection, scheduling and resource allocation with time dependent returns," European Journal of Operational Research, Elsevier, vol. 193(1), pages 23-34, February.
    25. Mika, Marek & Waligora, Grzegorz & Weglarz, Jan, 2005. "Simulated annealing and tabu search for multi-mode resource-constrained project scheduling with positive discounted cash flows and different payment models," European Journal of Operational Research, Elsevier, vol. 164(3), pages 639-668, August.

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