An economic–probabilistic model for project selection and prioritization

Abstract

This paper presents an economic–probabilistic model for project selection and prioritization that enables necessary investments and potential benefits and their inherent variability to be quantified, thus providing a stochastic analysis of expected returns for projects. The model was developed in three steps: definition of criteria; definition of the most appropriate method to be used; and model building. A practical test to evaluate the applicability and usefulness of the model comprising a portfolio of investment projects at a power distribution company was conducted. The results show three major contributions of the proposed model: i) a set of sufficiently complete criteria, ii) the combined use of economic and probabilistic approaches which qualifies the information available to decision makers, and iii) the use of financial language, which is more easily understood and has a concrete meaning for both management and technical staf