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Maximizing the net present value of a project subject to materials and capital constraints
Author(s) -
SmithDaniels Dwight E.,
SmithDaniels Vicki L.
Publication year - 1987
Publication title -
journal of operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.649
H-Index - 191
eISSN - 1873-1317
pISSN - 0272-6963
DOI - 10.1016/0272-6963(87)90005-2
Subject(s) - schedule , project management , computer science , project planning , net present value , capital budgeting , operations research , present value , variety (cybernetics) , heuristic , project management triangle , scheduling (production processes) , economics , operations management , production (economics) , microeconomics , finance , project appraisal , engineering , artificial intelligence , operating system , management
Large projects in a variety of industries must be scheduled subject to constraints on capital availability with the objective of maximizing their net present value. The effects of capital and materials costs and constraints have been discussed separately in the project management literature, but they have yet to be treated in an integrated fashion. A framework summarizing the previous research on resource constrained project scheduling is presented in this article and the limited role of monetary objectives in the previous research is illustrated. A new approach to the project scheduling problem is presented where the net present value of a project is maximized subject to capital and material constraints. The major benefit of this approach is that it allows managers to optimize the monetary objectives for a project. A series of examples illustrates the necessity of considering materials costs and constraints in project management. The inclusion of materials management factors in developing a project schedule is shown to lead to lower total project costs. It is demonstrated that the failure to consider materials in the initial planning of a project may lead to either unprojected delays in a project, higher costs, or both. Continued research on this problem is needed in a number of areas. Due to the computational complexity and importance of this problem in practice, it is necessary to develop heuristic approaches to derive project schedules. Future research should compare the results for the existing approaches that minimize project duration to those with monetary objective functions to determine the magnitude of the monetary difference between the former and the latter. Finally, the approach considered in this article should be extended to the multiproject environments where it is necessary to make capital allocation decisions among competing projects.