Objective space approach for analyzing a multiple criteria capital budgeting model

The important application of capital budgeting plays a central role in many financially based applications. Capital budgeting by nature is a multiple criteria decision making problem. There are many studies of the capital budgeting problem using the concepts of multicriteria decision making and/or solution by applying multiple objective linear programming. The multiple objective linear program has several objectives, as mentioned, to be optimized over a convex polytope X. A number of authors approach this problem with techniques that are based on analyzing all the extreme points or edges of X that are efficient for the objective. However, in capital budgeting X is in a large dimensional space defined by many constraints. In these application the constraint set has a large number extreme points. On the other hand, the set of all budgeting objective values is frequently in a space of small dimension reflecting the number of goals in the problem. This leads naturally looking at the objective space approach discussed in this paper