Capital Budgeting with Multiple Criteria and Multiple Decision Makers

Wikil Kwak, Yong Shi, Heeseok Lee and Cheng F. Lee

Review of Quantitative Finance and Accounting, 1996, vol. 7, issue 1, 97-112

Abstract: In this article, we propose a model that incorporates the preferences of multiple decision makers into a decision-making process using (1) The analytical hierarchy process (AHP); and (2) multiple criteria and multiple constraint levels (MC "squared") linear programming in a capital budgeting context. Our model can foster strategic and nonfinancial factors that are important in the capital budgeting problems of the current business environment. The two-phased solution framework proposed in this article is sufficiently flexible to reach a compromise among decisionmakers. Our method also facilitates collection of decision makers' preferences to minimize suboptimization of overall company's goals. In addition, application of AHP to derive weights to decision makers' preferences for resource availability decreases the solution complexity. All these characteristics represent a significant improvement compared with previous linear or goal programming approaches to capital budgeting problems. Coauthors are Yong Shi, Heeseok Lee, and Cheng F. Lee. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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