Project Net Present Value Optimization

Abstract

This chapter demonstrates how to optimise the net present value (NPV) and internal rate of return (IRR) of a commercial venue construction project, managed in Microsoft™ Project, by minimising the total variable cost (TVC). Simulation and stochastic optimisation models consider uncertainty in task durations, and Risk Register is used to estimate contingencies and real-time cash flows to resolve NPV, IRR, and TVC. Firstly, the simulation is run, and then the optimisation is performed. The simulation and optimisation results are examined to evaluate NPV, IRR, TVC, and risk factors. Finally, the simulation and optimisation results are compared. It is concluded that optimisation significantly increases the project's NPV and IRR with a negligible increase in associated risks, which is the objective.