Project Selection Optimization with R
R for Industrial Engineers

Project Selection Optimization with R

Operations Research Applications in Investment Planning

Image by Scott Graham available at Unsplash

Operations Research

Operations Research is a scientific approach for decision making that seeks for the best design and operation of a system, usually under conditions requiring the allocation of scarce or limited resources. The scientific approach for decision making requires the use of one or more mathematical optimization models (i.e. representations of the actual situation) to make the optimum decision.

Project Selection

Capital budgeting and investment planning are used to analyze the profitability of a projected investment or project, and thus, to determine those worth pusuing. For these decision, time value of money (a concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity) must be considered.

Ideally, the selected projects should be those that yield the highest net present values (i.e. the difference between the present value of cash inflows and the present value of cash outflows over a period of time). However, there might be budgeting constraints that could limit the selection of all the most profitable projects. For that reason, their selection must be optimized.

Project selection problems can be analyzed and solved using binary integer programming algorithms, where selected projects would take a value of 1 and those not selected a value of 0.
['Roberto Salazar']
['Programming', 'Operations Research', 'Industrial Engineering', 'Optimization', 'Project Management']