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On Maximizing the Net Present Value of a Project Under Renewable Resource Constraints

Author

Listed:
  • Mario Vanhoucke

    (Operations Management Group, Department of Applied Economics, Katholieke Universiteit Leuven, Naamsestraat 69, B-3000 Leuven, Belgium)

  • Erik Demeulemeester

    (Operations Management Group, Department of Applied Economics, Katholieke Universiteit Leuven, Naamsestraat 69, B-3000 Leuven, Belgium)

  • Willy Herroelen

    (Operations Management Group, Department of Applied Economics, Katholieke Universiteit Leuven, Naamsestraat 69, B-3000 Leuven, Belgium)

Abstract
In this paper we study the resource-constrained project-scheduling problem with discounted cash flows. Each activity of this resource-constrained project-scheduling problem has certain resource requirements and a known deterministic cash flow that can be either positive or negative. Deterministic cash flows are assumed to occur over the duration of the activities. Progress payments and cash outflows occur at the completion of activities. The objective is to schedule the activities subject to a fixed deadline to maximize the net present value subject to the precedence and resource constraints. With these features the financial aspects of project management are taken into account.We introduce a depth-first branch-and-bound algorithm that makes use of extra precedence relations to resolve a number of resource conflicts and a fast recursive search algorithm for the max-npv problem to compute upper bounds. The recursive search algorithm exploits the idea that positive cash flows should be scheduled as early as possible while negative cash flows should be scheduled as late as possible within the precedence constraints. The procedure has been coded in Visual C++, Version 4.0 under Windows NT, and has been validated on two problem sets.

Suggested Citation

  • Mario Vanhoucke & Erik Demeulemeester & Willy Herroelen, 2001. "On Maximizing the Net Present Value of a Project Under Renewable Resource Constraints," Management Science, INFORMS, vol. 47(8), pages 1113-1121, August.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:8:p:1113-1121
    DOI: 10.1287/mnsc.47.8.1113.10226
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    References listed on IDEAS

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    1. Herroelen, Willy S. & Gallens, Els, 1993. "Computational experience with an optimal procedure for the scheduling of activities to maximize the net present value of projects," European Journal of Operational Research, Elsevier, vol. 65(2), pages 274-277, March.
    2. Herroelen, Willy S. & Van Dommelen, Patrick & Demeulemeester, Erik L., 1997. "Project network models with discounted cash flows a guided tour through recent developments," European Journal of Operational Research, Elsevier, vol. 100(1), pages 97-121, July.
    3. Rainer Kolisch & Arno Sprecher & Andreas Drexl, 1995. "Characterization and Generation of a General Class of Resource-Constrained Project Scheduling Problems," Management Science, INFORMS, vol. 41(10), pages 1693-1703, October.
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    6. Erik Demeulemeester & Willy Herroelen, 1992. "A Branch-and-Bound Procedure for the Multiple Resource-Constrained Project Scheduling Problem," Management Science, INFORMS, vol. 38(12), pages 1803-1818, December.
    7. Erik L. Demeulemeester & Willy S. Herroelen, 1997. "New Benchmark Results for the Resource-Constrained Project Scheduling Problem," Management Science, INFORMS, vol. 43(11), pages 1485-1492, November.
    8. Elmaghraby, Salah E. & Herroelen, Willy S., 1990. "The scheduling of activities to maximize the net present value of projects," European Journal of Operational Research, Elsevier, vol. 49(1), pages 35-49, November.
    9. Etgar, Ran & Shtub, Avraham & LeBlanc, Larry J., 1997. "Scheduling projects to maximize net present value -- the case of time-dependent, contingent cash flows," European Journal of Operational Research, Elsevier, vol. 96(1), pages 90-96, January.
    10. Oya Icmeli & S. Selcuk Erenguc, 1996. "A Branch and Bound Procedure for the Resource Constrained Project Scheduling Problem with Discounted Cash Flows," Management Science, INFORMS, vol. 42(10), pages 1395-1408, October.
    11. De Reyck, Bert & Herroelen, willy, 1998. "A branch-and-bound procedure for the resource-constrained project scheduling problem with generalized precedence relations," European Journal of Operational Research, Elsevier, vol. 111(1), pages 152-174, November.
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