Optimizing Project Prioritization Under Budget Uncertainty

We consider a problem commonly faced in the nuclear power industry, involving annual selection of plant capital investments under the constraints of a limited and uncertain budget. When the budget is assumed known, a typical approach to such problems is built on a multi-dimensional knapsack model. This model takes as input the available budget in each year, the stream of liabilities induced by selecting each project, and the profit, i.e., net present value (NPV), of each project. The goal is to select the portfolio of projects with the highest total NPV, while observing the budget constraint for each year, as well as any additional constraints. We show that a portfolio selected in this manner can fail to hedge against uncertainties in the budget. While the budget may be known at the beginning of the planning period, external events can cause this to change as time unfolds, and hence the funds that will actually be allocated over time are typically uncertain. So, we propose a model that forms an optimal priority list of projects, incorporating multiple budget scenarios. The model is applied to example projects from the South Texas Project Nuclear Operating Company (STPNOC).