Multiple projects and constraints

1. 1
THUNDER

2. MULTIPLE
PROJECTS &
CONSTRAINTS

3. MULTIPLE
PROJECTS
Handling several projects at once means more
than dealing with just multiple schedules, it
involves multiple risks, multiple stakeholders and
multiple functional managers who allocate
resources
3

4. CONSTRAINTS
Project
Dependence
Capital
Rationing
Project
Indivisibility
💣

5. PROJECT DEPENDENCE
• Mutually Exclusive
• Negatively Dependent
• Positively Dependent
5
Projects A and B are economically dependent if the acceptance
or rejection of one changes the cash flow stream or affects the
acceptance or rejection of the other

6. External
constraint
Internal
limitation
CAPITAL RATIONING
Capital rationing exists when funds available for
investment are inadequate to undertake all projects
which are otherwise acceptable. Sources of capital
rationing.
6

7. PROJECT INDIVISIBILITY
A capital project has to be accepted in
toto ,i.e,it can not be accepted partially
7

8. METHOD OF RANKING
8
The ranking method is a simple approach that arranges
the projects on a scale of, say, one to ten, based on their
importance.

9. SOME RANKING METHOD EXAMPLE
QUESTIONS ARE
9

10. CONFLICT OF RANKING
10
Performance ranking tends to differ from one criterion to another
in a given set of projects
Exhibit: NPV, IRR and BCR for five projects
Project NPV
(Tk)
NPV
Ranking
IRR
(Percent)
IRR
Ranking
BCR BCR
Ranking
A 14776 4 39 1 2.48 5
B 5370 5 22 4 1.21 1
C 14776 3 19 5 1.49 4
D 45688 1 30 3 2.20 2
E 28936 2 31 2 1.83 3

11. SOURCES OF CONFLICT
11
• Time disparity
• Size disparity
• Life disparity

12. TIME DISPARITY
12
Initial Outlay
PV of cash
inflows
NPV………….
BCR…………..
IRR ………..
Ranking conflict
Using NPV and BCR Project A is better
Using IRR project B is better
Project-A
1,10,000
1,46,000
36,500
1.33
22%
Project-B
1,10,000
1,41,000
31,300
1.28
25%

13. SIZE DISPARITY
13
NPV………….
BCR…………..
IRR ………..
Ranking conflict
Using NPV Project A is better
Using IRR and BCR project B is better
Project A
36,500
1.32
13%
Project B
31,300
1.53
22%%

14. LIFE DISPARITY
14
Rebuilding project Replacing project
VS

15. MATHEMATICAL
PROGRAMMING
APPROACH
15

16. A Mathematical
Programming Model Is
Formulated In Terms Of
Two Broad Categories
Of Equations
1. The objective function
(goal or objective)
2. The constraint equation
(restrictions )

17. “
Variety Of
Mathematical
Programming
Models
Integer
Programming
Model
Linear
Programming
Model
Goal
Programming
Model

18. LINEAR
PROGRAMMING
MODEL

19. ASSUMPTIONS
19
• The objectives function and the constraint equations are
linear.
• The objective function is unidimensional.
• The decision variables are considered to be continuous.
• Resources are homogeneous.

20. FORMULA
20
𝑗=1
𝑛
= 𝑁𝑃𝑉𝑗 𝑋𝑗Maximize
𝑗=1
𝑛
= 𝐶𝐹𝑗𝑡 𝑋𝑗 ≤ Kt (t=0,1,2……m)Subject to

21. “
INTEGER
LINEAR
PROGRAMMING
MODEL
21

22. INTEGER LINEAR PROGRAMMING MODEL
CAPITAL BUDGETING
Integer Linear programming, in which the objective function and
the constraints are linear
Integer linear programming model for capital budgeting
Maximize
𝑗=1
𝑛
= 𝑁𝑃𝑉𝑗 𝑋𝑗
Subject to
22
𝑗=1
𝑛
= 𝐶𝐹𝑗𝑡 𝑋𝑗 ≤ Kt (t=0,1,2……m)

23. Incorporating Project
Interdependencies in the Model
23

24. “The following kinds of project interdependencies are
incorporated in the integer linear programming model
24

25. “THE PRINCIPAL STRENGTHS OF THE INTEGER
PROGRAMMING MODEL, CLEARLY DEMONSTRATED
ABOVE , ARE:
1. It overcomes the problem of capital projects
which besets the linear programming model.
2. It is capable of handling virtually any kind of
project interdependency.

26. Goal
Programming
Model
26

27. “
Goal
Structure
Includes
27
Stability of
Reported
Earning
Stability
of
Dividends
Sale &
Market
Share

28. THE DICISION MAKER MUST
• State an absolute priority order among his goals
• Provide a target value
for each of his goals
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29. PRINCIPAL COMPONENT
29

30. TOPIC OVERVIEW
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31. 31
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