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The Stochastic Time-Constrained Net Present Value Problem

In: Handbook on Project Management and Scheduling Vol. 2

Author

Listed:
  • Wolfram Wiesemann

    (Imperial College London)

  • Daniel Kuhn

    (École Polytechnique Fédérale de Lausanne)

Abstract

The successful management of capital-intensive development and engineering projects requires a careful timing of the involved cash in- and outflows. To this end, the project management literature proposes to schedule the project activities so as to maximize their net present value (NPV), that is, the sum of all discounted cash flows. Traditionally, the literature on NPV maximization ignores the uncertainty inherent in the activity durations and cash flows. In this survey, we argue that this uncertainty should be accounted for explicitly, and we investigate the computational challenges involved in doing so. We then review the two major strands of literature on stochastic NPV maximization. The first set of papers provides optimal solutions under the assumption that the activity durations follow independent exponential distributions. The second strand of literature allows for generic distributions but focuses on suboptimal solutions. We conclude with a list of research questions that we believe deserve further attention.

Suggested Citation

  • Wolfram Wiesemann & Daniel Kuhn, 2015. "The Stochastic Time-Constrained Net Present Value Problem," International Handbooks on Information Systems, in: Christoph Schwindt & Jürgen Zimmermann (ed.), Handbook on Project Management and Scheduling Vol. 2, edition 127, chapter 0, pages 753-780, Springer.
    • Handle: RePEc:spr:ihichp:978-3-319-05915-0_5
    DOI: 10.1007/978-3-319-05915-0_5
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    Citations

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    Cited by:

    1. Creemers, Stefan, 2018. "Moments and distribution of the net present value of a serial project," European Journal of Operational Research, Elsevier, vol. 267(3), pages 835-848.
    2. Rostami, Salim & Creemers, Stefan & Leus, Roel, 2024. "Maximizing the net present value of a project under uncertainty: Activity delays and dynamic policies," European Journal of Operational Research, Elsevier, vol. 317(1), pages 16-24.
    3. Szmerekovsky, Joseph G. & Venkateshan, Prahalad & Simonson, Peter D., 2023. "Project scheduling under the threat of catastrophic disruption," European Journal of Operational Research, Elsevier, vol. 309(2), pages 784-794.
    4. Bruni, Maria Elena & Hazır, Öncü, 2024. "A risk-averse distributionally robust project scheduling model to address payment delays," European Journal of Operational Research, Elsevier, vol. 318(2), pages 398-407.
    5. Hermans, Ben & Leus, Roel & Looy, Bart Van, 2023. "Deciding on scheduling, secrecy, and patenting during the new product development process: The relevance of project planning models," Omega, Elsevier, vol. 116(C).
    6. Creemers, Stefan, 2018. "Maximizing the expected net present value of a project with phase-type distributed activity durations: An efficient globally optimal solution procedure," European Journal of Operational Research, Elsevier, vol. 267(1), pages 16-22.

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