Heuristic scheduling of capital constrained projects

Abstract

The movement to product and process development projects that involve joint ventures among strategic partners, as well as the increasing prevalence of projects within organizations has led to increased implementation of project scheduling methods. It is frequently the case that a capital constraint is placed on a project, thus limiting the number and value of activities that can be scheduled to occur simultaneously. However, the quantity of capital available to schedule activities can increase as additional cash is received as progress payments for completed activities. Since the project manager'so objective is to maximize project Net Present Value (NPV), it is important for the manager to develop a schedule that balances the early receipt of progress payments (which improve NPV and increase the capital balance available), with the delay of particularly large expenditures. Due to the intractability of optimal methods, the use of heuristic methods is required to solve problems of practical size. This paper presents the first test of heuristic methods for solving this problem. We use information from a relaxed optimization‐guided model that employs information from the unconstrained NPV‐optimal problem in heuristic procedure for solving the capital constrained problem. An experimental design is employed to test the heuristics that includes multiple factor levels for a number of project characteristics, including capital utilization, frequency of progress payments, and project network structure. The results indicate very good relative performance for the optimization‐guided procedures as compared to two benchmark heuristics.

Capital- and resource-constrained project scheduling with net present value optimization

“…We compare the results for the CCPSPDC with a composite heuristic, which is based on two algorithms from literature. The composite algorithm splits the problem into two parts, namely optimize the project NPV and reduce capital shortages, similar to Smith-Daniels et al (1996).…”

“…The proposed heuristic employs the best method of Smith-Daniels et al (1996) to make decisions with respect to capital, but uses the exact recursive method of Vanhoucke et al (2001b) for the max-NPV problem. In the remainder of this section, the composite procedure is abbreviated as SD-V, or Smith-Daniels-Vanhoucke.…”

“…Smith-Daniels and Smith-Daniels (1987) and Smith-Daniels et al (1996) state that a project which does not generate capital will not be executed from a capital management point of view, which implies that the total cash inflows of a project have to exceed its total cash outflows. A profit margin percentage (PMP ) parameter is used to determine the difference between the total cash in-and outflows.…”

Robustness of schedules for project scheduling problem with cash flow optimisation

“…An interesting research direction taking into consideration economic criteria is a problem in which capital is assumed to be among non-renewable resources, and thus a constrain in schedule construction; it is referred to as the Capital Constrained Project Scheduling Problem (CCPSP) [11]. In the CCPSP problem, cash expenses and income should set each other off at any time t. Task execution requires expenses which may be made if funds are available received for the execution of earlier tasks or milestones of the project.…”

“…In the CCPSP problem, cash expenses and income should set each other off at any time t. Task execution requires expenses which may be made if funds are available received for the execution of earlier tasks or milestones of the project. Activity execution may not start at a given time if the related expenses exceed funds available [11]. The cash available may be negative, which is interpreted as debt.…”