Information technology capital budgeting using a knapsack problem

Information technology capital budgeting using a knapsack problem

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Article ID: iaor20072670
Country: United Kingdom
Volume: 13
Issue: 4
Start Page Number: 333
End Page Number: 351
Publication Date: Jul 2006
Journal: International Transactions in Operational Research
Authors: ,
Keywords: optimization: simulated annealing
Abstract:

In this paper, we describe an information technology capital budgeting (ITCB) problem, show that the ITCB problem can be modeled as a 0–1 knapsack optimization problem, and propose two different simulated annealing (SA) heuristic solution procedures to solve the ITCB problem. Using several simulations, we empirically compare the performance of two SA heuristic procedures with the performance of two well-known ranking methods for capital budgeting. Our results indicate that the information technology (IT) investments selected using the SA heuristics have higher after-tax profits than the IT investments selected using the two ranking methods.

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