A Multi Criteria Decision Analysis for Reinvestment Action Portfolio Selection Problem in an Indonesian Real Estate Company

Abstract

As part of their corporate strategic action, PT X has divested one of their hotel business in Bali, they planned to invest the cash generated to several real estate development projects in Indonesia. This research expect to formulate a decision model that can be applied to this type of project selection problem. The project selection process might involve several criteria such as financial performance, market potential, risk level, and social benefit, making it suitable to apply the multi-criteria decision analysis approach in order to construct an outranking relations among alternatives under consideration. The selection process also under an uncertainty of future events, which require special step to let the decision model absorb it. Therefore, the Monte Carlo simulation is conducted after the financial modelling on each alternatives to address the uncertainty factors. The final portfolio selection process is done via Integer Programming and completed with the sensitivity analysis to see the behavior of the final decision when some parameters are changed. This approach gives the decision maker a sound decision making model that can be useful for them in selecting the projects to be included in their real estate portfolio. The research found out that using the multi criteria method in the selection process has a different outcome compared to using only the financial values as the selection criteria. However, the financial criteria are still found to be the more important criteria. Overall, the model built in this research has been successfully implemented in the decision making process in PT. X. The decision model will also suitable to be applied for manufacturing industry that frequently encounter project selection problem.