A Novel Perspective on Prioritizing Investment Projects under Future Uncertainty: Integrating Robustness Analysis with the Net Present Value Model

Shao Sheng () and Sorourkhah Ali ()
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Shao Sheng: Department of Economics Teaching and Research, Qinghai Provincial Party School of the Communist Party of China, Xining, 810001, China
Sorourkhah Ali: Department of Management, Ayandegan Institute of Higher Education, Tonekabon, 4681853617, Iran

Economics - The Open-Access, Open-Assessment Journal, 2024, vol. 18, issue 1, 16

Abstract: Investment decisions are important because they involve significant capital in a business. According to the literature, experts agree that a net present value (NPV) approach is better suited for evaluating investment projects’ feasibility. Practically, the NPV method does not account for uncertainty in calculating the expected return on investment. Investments may be susceptible to random events such as natural disasters or economic instability that hinder the expected return on investment. While previous research has attempted to address uncertainty using fuzzy approaches, these approaches mainly focus on data-centric uncertainty. The focus of this study is on the uncertain environmental conditions where changes in macroeconomic, political, and other indicators can influence decision outcomes. This study conceptualizes and implements combining the NPV approach with robust analysis as an efficient and practical method in decision-making under uncertainty and unpredictability. The proposed algorithm was implemented in a case study on investment project selection in Tannakabon, Iran. The results indicate that considering future scenarios, the restaurant investment project is the most suitable among the seven projects. In contrast, the cafe investment project is the least appropriate option available.

Keywords: net present value; robustness analysis; investment; uncertainty; decision-making (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:econoa:v:18:y:2024:i:1:p:16:n:1001

DOI: 10.1515/econ-2022-0111

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