Portfolio decision analysis with PROBE: addressing costs of not financing projects

Authors:
João Carlos Lourenço;Carlos A. Bana E. Costa;João Oliveira Soares
Affiliations:
Department of Engineering and Management and Centre for Management Studies, Instituto Superior Técnico, Technical University of Lisbon, Lisbon, Portugal;Department of Engineering and Management and Centre for Management Studies, Instituto Superior Técnico, Technical University of Lisbon, Lisbon, Portugal;Department of Engineering and Management and Centre for Management Studies, Instituto Superior Técnico, Technical University of Lisbon, Lisbon, Portugal
Venue:
MACMESE'10 Proceedings of the 12th WSEAS international conference on Mathematical and computational methods in science and engineering
Year:
2010

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Abstract

In this paper, the basic formulation of the portfolio selection problem included in the decision support system PROBE (Portfolio Robustness Evaluation) is extended in order to incorporate the costs associated with not selecting some projects. We use as example a portfolio selection problem involving 13 indivisible projects from four firm departments that compete for a common budget. The selection is based on the projects' costs and the benefits on four criteria, taken into consideration interdependences between projects. In addition, the costs of not selecting some of the projects must be taken into account, because if they are not selected it will be necessary to reimburse the clients with which previous supply contracts had been signed.