A method for selecting an effective investment project portfolio

A new algorithm for selecting an effective investment project portfolio from a collection of projects developed by a company has been presented in this paper. The problem of selecting an investment project was formulated as multi-objective optimization problem. The algorithm is suited for enterprises with multistage production cycles, e.g. enterprises in the metallurgical or chemical industry. During the selection process the method takes into account statistical and economic interdependencies existing among projects. Upon choosing projects the algorithm takes into account twp criteria: maximization of the expected NPV and minimization of project portfolio risk. A company may develop an effective investment project portfolio for a few years ahead. The algorithm makes it possible to search for Pareto optimal solutions. It links computer simulation methods with a genetic algorithm and standard procedure for linear optimization. An example of the use of the algorithm for selecting projects in the metallurgical industry is presented.