Sustainable project selection: Optimal project selection considering sustainability under reinvestment strategy

Abstract

Reflecting the call being made by the United Nations Environmental Protection and society to adopt innovative approaches to resolve current sustainability challenges, there is a strong need for studies that incorporate sustainability concerns in decision-making processes. Yet the quantitative method of measuring sustainability in project investment practice is still limited. Besides, reinvestment is seldom considered. In light of this, the authors have proposed an integrated novel optimization approach in which sustainability cost is quantitatively quantified and reinvestment strategy is adopted. Our method creates win-win situation which prevents environmental damages and in the meantime efficiently allocates budget and maximizes the investors' income. A case study is presented to illustrate the applicability of the proposed method and the impact of sustainability measure with reinvestment strategy incorporated in project selection decision-making processes. Expected net present value is employed to calculate the return of the project investment. Based on demonstrated optimization results, some significant observations have been got: (1) range of sustainability cost significantly influences investors' objective value and optimal project selection decision. Investors' project selection decision and maximum objective value is obtained at 3% sustainability cost; (2) compared to traditional project selection practices, consideration of sustainability can maximize investors' net profit value; (3) objective value varies with different reinvestment strategies and it is more sensitive with total reinvestment strategy than with partial reinvestment strategy; (4) appropriate use of reinvestment strategy ensures efficient budget allocation to the projects for the effective implementation of project investment without exceeding investors' available capital even when additional 3% cost on sustainability is employed. The results verify the proposed methodology.