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Modern Methods For Evaluation Of Investment Efficiency In Engineering

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  • Daniela Vysloužilová
  • Karel Sellner

Abstract

The paper presents the proposed methodology for project portfolio evaluation. The methodology is based on theoretical knowledge gained in the literature and consultations with experts from academic and business practice. The proposed methodology is focused on the evaluation of investment plans with respect to the entire portfolio of projects. The methodology can be adapted to the changing requirements and needs of the company. It is based on the methods DEMATEL, ANP and linear programming. The DEMATEL method is used to formulate the structure of relationships between system criteria and gain the importance of criteria in the system. The ANP method is used to analyze the structure of the project portfolio and to determine the proposed order of project implementation. Linear programming already includes limited resource capacities in the solution. The functionality of the methodology is verified by a practical assessment of the project portfolio of a particular engineering company. A default set of criteria has been set for the methodology. Several experts were approached to find out the mutual links between the criteria and performed a pairwise comparison of all considered criteria. In total, 6 projects with mutual links were selected in cooperation with the company. The paper also describes the principles of the LCC method, which determines life cycle costs and their application to investment in machinery. The LCC method can be used as a method of financial evaluation of an investment as well as the more commonly used method of NPV today. The method includes the development and production costs of the machine, which are reflected in the purchase price, the cost of operating the machine over its entire life and disposal costs. The basis of the LCC method, is primarily knowledge of the reliability and durability of the individual units. Attention is also paid to the effectiveness of reconstruction and modernization.

Suggested Citation

  • Daniela Vysloužilová & Karel Sellner, 2020. "Modern Methods For Evaluation Of Investment Efficiency In Engineering," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 14(1), pages 102-115.
    • Handle: RePEc:isp:journl:v:14:y:2020:i:1:p:102-115
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    References listed on IDEAS

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    1. Eric Korpi & Timo Ala-Risku, 2008. "Life cycle costing: a review of published case studies," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(3), pages 240-261, March.
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    More about this item

    Keywords

    the dematel method; the anp method; the linear programming; the life cycle costs; project portfolio selection;
    All these keywords.

    JEL classification:

    • A - General Economics and Teaching

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