Robustness in Sequential Investment Decisions

Shiv K. Gupta and Jonathan Rosenhead
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Shiv K. Gupta: University of Pennsylvania
Jonathan Rosenhead: London School of Economics

Management Science, 1968, vol. 15, issue 2, B18-B29

Abstract: Long-range investment plans, particularly for expansion or decentralization, often consist of a number of separate but interacting investments spaced over a number of years. Where there is appreciable uncertainty about external conditions in the future, it is possible that a "best" scheme based on the state of current knowledge will prove during the course of the intervening years to be less than good. One way of guarding against this danger is to ensure that the early (and therefore irreversible) steps in the investment sequence keep open as many options of "good" schemes as possible. Concepts of robustness and stability are developed. As a practical example of the use of these concepts a case study is presented, which deals with the location of sites for new factories in an industrial expansion program.

Date: 1968
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