Project prioritization method using analytic hierarchy process as a tool: An alternative capital rationing methodology

• Main Author: Manalo, Marivic Valenzuela
• Format: text
• Published: Animo Repository 2008
• Subjects: Accounting
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/12265
• Institution: De La Salle University

This study is the result of Power Corporation management's intention to optimize their various capital investment decision processes withing the organization. The need of including qualitative factors in the selection of firm's capital investment projects gave impetus to an alternative model called the project prioritization method (PPM) using as took the analytic hierarchy process. PPM is a process of selecting projects given the goals and limited resources of a company.Using Kendall tau distance, the projects classified under infrastructures, machineries and equipments are first ranked separately using the PPM and NPV models. The following is the result for the three capital project classifications: 1) infrastructure projects, 0.4; 2) machineries, 0.357; and 3) equipments, 0.411. All these values indicate low agreement in the rankings between the PPM and NPV models. Therefore, it can be concluded that the rankings for all the three capital project classifications under the two models are significantly different.Based on the results arrived through the Kendal tau distance, PPM can be considered as a system which is significantly different from the traditional NPV/IRR model, thus, the null hypothesis of the study that the ranking of capital investment projects using NPV, IRR and PI is similar to the rankiing using the PPM model is rejected.