Project selection with sets of mutually exclusive alternatives

The authors study the problem to maximise the net economic benefit of an investment plan by selecting from a portfolio of candidate projects within a given budget constraint. As is well known, with independent projects the economic efficiency of the entire investment plan is maximised if projects are selected according to their benefit-cost ratio until the budget is exhausted. Often, however, the planning of a project involves a stage where a set of alternative concepts or designs are considered. A best alternative is chosen, and the plan is composed from the pool of all such best alternatives. This procedure violates the assumptions underlying the benefit-cost ratio criterion. In this paper, the authors set out the correct criterion to use. A real-life example from Norwegian transport planning is provided to show how the global setting into which the project is going to compete, matters for the selection criterion to be used.

Language

  • English

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Filing Info

  • Accession Number: 01608665
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Aug 22 2016 10:01AM