Abstract
Enterprises are confronted with several project alternatives that they assume to gain revenue in the future, but their own economical resources are limited to carry out all alternatives. Therefore, a decision process arises to prioritize and select among alternatives according to the predetermined goals and criteria to reach the maximum utilization. On the other hand, in project evaluation, the values of project parameters are often assumed to be known with complete certainty. However, project parameters normally change during a life cycle of the project, and it is necessary to consider uncertainty and risk phenomena while evaluating projects. Simulation-based project evaluation approaches enable to make more reliable investment decision since they permit to include future uncertainty and risk in analysis process. In this article, a novel simulation-based optimal decision approach is proposed for evaluating and comparing investment projects under uncertain and/or risky environments. The phases of the proposed approach are; (a) developing the effectiveness measure formulation of a project, (b) identifying and checking all controllable project parameters that affect the measure, (c) developing simulation model for the measure, and (d) performing the project ranking and selection procedures in order to rank and select the projects. Three ranking and selection procedures, previously used for comparing performances of the different production/service systems, are embedded in the proposed approach.
Highlights
In economic analyses, it is often assumed that all factors are deterministic in nature, but in reality, some factors have stochastic properties
It is obvious that investment decision-making never takes place under conditions of certainty, but only under those of uncertainty or risk
In traditional project evaluation methods, it is often assumed that all factors are deterministic in nature
Summary
Investment project evaluation and selection is the process of evaluating individual projects to choose the right one based on an analysis, so that the objectives of the company will be achieved. As a result of literature review, it is specified that; there are four main types of approaches recently considered and studied which have similar targets in project evaluation and selection under uncertainty or risk. The methods used in these approaches analytic hierarchy process, goal programming, multi-attribute utility models, group decision making, fuzzy multi-criteria/multi-objective programming computer simulation, simulation metamodeling dynamic programming, fuzzy logic, genetic algorithms sensitivity analysis, probability analysis, computer simulation
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