Abstract
This paper focuses on an investment decision-making process for sustainable development based on the profitability impact factors for overseas projects. Investors prefer to use the discounted cash-flow method. Although this method is simple and straightforward, its critical weakness is its inability to reflect the factor volatility associated with the project evaluation. To overcome this weakness, the Value-at-Risk method is used to apply the volatility of the profitability impact factors, thereby reflecting the risks and establishing decision-making criteria for risk-averse investors. Risk-averse investors can lose relatively acceptable investment opportunities to risk-neutral or risk-amenable investors due to strict investment decision-making criteria. To overcome this problem, critical factors are selected through a Monte Carlo simulation and a sensitivity analysis, and solutions to the critical-factor problems are then found by using the Theory of Inventive Problem Solving and a business version of the Project Definition Rating Index. This study examines the process of recovering investment opportunities with projects that are investment feasible and that have been rejected when applying the criterion of the Value-at-Risk method. To do this, a probabilistic alternative approach is taken. To validate this methodology, the proposed framework for an improved decision-making process is demonstrated using two actual overseas projects of a Korean steel-making company.
Highlights
Since 2005, Korean steel-making companies have been attempting to establish overseas steel plant projects (SPPs)
This paper is organized as follows: Section 2 discusses the need for research from an investigation of the relevant literature; Section 3 introduces the project evaluation methodology for traditional decision-making processes and for improved decision-making processes; Section 4 identifies the factors that affect project value in terms of risk management and a method is suggested for quantitatively analyzing risk factors using a proposed probabilistic alternative approach employing TRIZ and Project Definition Rating Index (PDRI); Section 5 validates this paper through a case study of two actual steel plant projects, and a conclusion summarizes the paper and discusses limitations and future plans
This means that the net present value (NPV) and internal rate of return (IRR) output variables must be calculated under uncertain input variables that vary within a certain range and shift with the occurrence of hazardous events; it is possible to obtain
Summary
Since 2005, Korean steel-making companies have been attempting to establish overseas steel plant projects (SPPs). This paper is organized as follows: Section 2 discusses the need for research from an investigation of the relevant literature; Section 3 introduces the project evaluation methodology for traditional decision-making processes and for improved decision-making processes; Section 4 identifies the factors that affect project value in terms of risk management and a method is suggested for quantitatively analyzing risk factors using a proposed probabilistic alternative approach employing TRIZ and PDRI; Section 5 validates this paper through a case study of two actual steel plant projects, and a conclusion summarizes the paper and discusses limitations and future plans
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