Active management in state-owned energy companies: Integrating a real options approach into multicriteria analysis to make companies sustainable

Abstract

As a fundamental approach to assess active management and decision-making challenges in large state-owned energy companies (e.g., sustainability, social responsibility, economic growth, and shareholder value), this paper presents a methodological approach, based on a real case study, for integrating real options analysis into multicriteria analysis in order to evaluate and holistically rank a portfolio of multiple firms’ projects. While real options analysis adds value to the projects by hedging uncertainty and valuing flexibility in the decision-making process, multicriteria analysis allows ranking the projects through an Aggregate Quality function that synthesizes economic and social impacts such as gross domestic product and employment. The proposed approach divides the decision-making problem into three main areas that consider aspects related to decision makers’ preferences (behavioral area), data analysis (analytical area), and projects’ rankings (multicriteria analysis methods) based on the use of Preference Ranking Organization Methods for Enrichment Evaluations (PROMETHEE). A case example involving a portfolio of projects in state-owned energy companies discusses the benefits of the proposed methodology.