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Capital Budgeting with Multiple Criteria and Multiple Decision Makers

Author

Listed:
  • Kwak, Wikil
  • Shi, Yong
  • Lee, Heeseok
  • Lee, Cheng F.

Abstract

In this article, we propose a model that incorporates the preferences of multiple decision makers into a decision-making process using (1) The analytical hierarchy process (AHP); and (2) multiple criteria and multiple constraint levels (MC "squared") linear programming in a capital budgeting context. Our model can foster strategic and nonfinancial factors that are important in the capital budgeting problems of the current business environment. The two-phased solution framework proposed in this article is sufficiently flexible to reach a compromise among decisionmakers. Our method also facilitates collection of decision makers' preferences to minimize suboptimization of overall company's goals. In addition, application of AHP to derive weights to decision makers' preferences for resource availability decreases the solution complexity. All these characteristics represent a significant improvement compared with previous linear or goal programming approaches to capital budgeting problems. Coauthors are Yong Shi, Heeseok Lee, and Cheng F. Lee. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Kwak, Wikil & Shi, Yong & Lee, Heeseok & Lee, Cheng F., 1996. "Capital Budgeting with Multiple Criteria and Multiple Decision Makers," Review of Quantitative Finance and Accounting, Springer, vol. 7(1), pages 97-112, July.
    • Handle: RePEc:kap:rqfnac:v:7:y:1996:i:1:p:97-112
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    Cited by:

    1. Rong, Aiying & Figueira, José Rui, 2013. "A reduction dynamic programming algorithm for the bi-objective integer knapsack problem," European Journal of Operational Research, Elsevier, vol. 231(2), pages 299-313.
    2. Rong, Aiying & Figueira, José Rui, 2014. "Dynamic programming algorithms for the bi-objective integer knapsack problem," European Journal of Operational Research, Elsevier, vol. 236(1), pages 85-99.
    3. Freville, Arnaud, 2004. "The multidimensional 0-1 knapsack problem: An overview," European Journal of Operational Research, Elsevier, vol. 155(1), pages 1-21, May.
    4. Kathrin Klamroth & Margaret M. Wiecek, 2000. "Dynamic programming approaches to the multiple criteria knapsack problem," Naval Research Logistics (NRL), John Wiley & Sons, vol. 47(1), pages 57-76, February.
    5. Hanwen Chen & Wang Dong & Hongling Han & Nan Zhou, 2017. "A comprehensive and quantitative internal control index: construction, validation, and impact," Review of Quantitative Finance and Accounting, Springer, vol. 49(2), pages 337-377, August.
    6. Klamroth, Kathrin & Wiecek, Margaret M., 2001. "A time-dependent multiple criteria single-machine scheduling problem," European Journal of Operational Research, Elsevier, vol. 135(1), pages 17-26, November.
    7. Shi, Yong, 1998. "Optimal system design with MC2 linear programming: A dual contingency plan approach," European Journal of Operational Research, Elsevier, vol. 107(3), pages 692-709, June.

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