Assessing the profitability of investment projects using ordered fuzzy numbers
Background: This article is motivated by the fact that most approaches to capital budgeting are deterministic. In reality, the capital budgeting problem is accompanied by the uncertainty and risk associated with dealing with imprecise data. Taking this uncertainty into account when performing analys...
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Poznań School of Logistics
2019-09-01
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doaj-ec9a6e1e7ab94df0a6bc8830ddfef15a2020-11-24T21:14:46ZengPoznań School of LogisticsLogForum1734-459X2019-09-01153Assessing the profitability of investment projects using ordered fuzzy numbersIwona Pisz0Anna Chwastyk1Iwona Łapuńka2Opole University, Opole, PolandOpole University of Technology, Opole, PolandOpole University of Technology, Opole, PolandBackground: This article is motivated by the fact that most approaches to capital budgeting are deterministic. In reality, the capital budgeting problem is accompanied by the uncertainty and risk associated with dealing with imprecise data. Taking this uncertainty into account when performing analyses and calculations not only helps to better measure the profitability of investment projects, but also to expand the applicability of capital budgeting methods under real-life or uncertain conditions. The major contribution of this paper is the development of a novel approach to assessing the profitability of an investment project in the presence of uncertainty. Methods: We present a novel approach for incorporating uncertainty into how the profitability of investment projects is assessed, which we term Ordered Fuzzy Net Present Value (OFNPV). The proposed method measures the level of investment project effectiveness using a model based on ordered fuzzy numbers (OFNs). In addition, ordered fuzzy numbers are used to describe changes to the investment parameters in the assumed time horizon. This paper illustrates an implementation of the proposed technique using a numerical example of an investment process in the logistics department of a company. Results: The use of the proposed method based on OFNs allows experts to gauge the real-life accuracy of the considered phenomenon, and to express their assessment of its dynamic changes. This is vital to the problem of profitability assessment in investment projects. Conclusions: Our approach offers a new perspective on the problem of investment in projects and constitutes an effective tool for assessing the profitability of investment projects. This tool could constitute a valuable source of knowledge for investors involved in decision-making processes.http://www.logforum.net/vol15/issue3/no6/15_3_6_19.pdfprojectinvestment projectcapital budgetingNPVfuzzy numberordered fuzzy number |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Iwona Pisz Anna Chwastyk Iwona Łapuńka |
spellingShingle |
Iwona Pisz Anna Chwastyk Iwona Łapuńka Assessing the profitability of investment projects using ordered fuzzy numbers LogForum project investment project capital budgeting NPV fuzzy number ordered fuzzy number |
author_facet |
Iwona Pisz Anna Chwastyk Iwona Łapuńka |
author_sort |
Iwona Pisz |
title |
Assessing the profitability of investment projects using ordered fuzzy numbers |
title_short |
Assessing the profitability of investment projects using ordered fuzzy numbers |
title_full |
Assessing the profitability of investment projects using ordered fuzzy numbers |
title_fullStr |
Assessing the profitability of investment projects using ordered fuzzy numbers |
title_full_unstemmed |
Assessing the profitability of investment projects using ordered fuzzy numbers |
title_sort |
assessing the profitability of investment projects using ordered fuzzy numbers |
publisher |
Poznań School of Logistics |
series |
LogForum |
issn |
1734-459X |
publishDate |
2019-09-01 |
description |
Background: This article is motivated by the fact that most approaches to capital budgeting are deterministic. In reality, the capital budgeting problem is accompanied by the uncertainty and risk associated with dealing with imprecise data. Taking this uncertainty into account when performing analyses and calculations not only helps to better measure the profitability of investment projects, but also to expand the applicability of capital budgeting methods under real-life or uncertain conditions. The major contribution of this paper is the development of a novel approach to assessing the profitability of an investment project in the presence of uncertainty.
Methods: We present a novel approach for incorporating uncertainty into how the profitability of investment projects is assessed, which we term Ordered Fuzzy Net Present Value (OFNPV). The proposed method measures the level of investment project effectiveness using a model based on ordered fuzzy numbers (OFNs). In addition, ordered fuzzy numbers are used to describe changes to the investment parameters in the assumed time horizon. This paper illustrates an implementation of the proposed technique using a numerical example of an investment process in the logistics department of a company.
Results: The use of the proposed method based on OFNs allows experts to gauge the real-life accuracy of the considered phenomenon, and to express their assessment of its dynamic changes. This is vital to the problem of profitability assessment in investment projects.
Conclusions: Our approach offers a new perspective on the problem of investment in projects and constitutes an effective tool for assessing the profitability of investment projects. This tool could constitute a valuable source of knowledge for investors involved in decision-making processes. |
topic |
project investment project capital budgeting NPV fuzzy number ordered fuzzy number |
url |
http://www.logforum.net/vol15/issue3/no6/15_3_6_19.pdf |
work_keys_str_mv |
AT iwonapisz assessingtheprofitabilityofinvestmentprojectsusingorderedfuzzynumbers AT annachwastyk assessingtheprofitabilityofinvestmentprojectsusingorderedfuzzynumbers AT iwonałapunka assessingtheprofitabilityofinvestmentprojectsusingorderedfuzzynumbers |
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