Comments on 'Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR.' (internal rate of return; response to D. Asquith and J.E. ... 1995): An article from: Engineering Economist
Book Details
Author(s)Miroslaw M. Hajdasinski
ISBN / ASINB00097MMGY
ISBN-13978B00097MMG8
MarketplaceUnited Kingdom 🇬🇧
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This digital document is an article from Engineering Economist, published by Institute of Industrial Engineers, Inc. (IIE) on January 1, 1997. The length of the article is 1330 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.
From the author: In their recent paper (D. Asquith & J.E. Bethel, "Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR," The Engineering Economist, Vol. 40, No. 3 (Spring 1995, pp. 287-294)), the authors propose a project ranking procedure that is supposed to mitigate the impact of cash flow overvaluation by project managers. In the current contribution, it is indicated that this procedure is based upon a project ranking approach that employs the IRR criterion in a theoretically inadequate way. The correct, incremental approach to the IRR-based project ranking is reiterated, and it is shown that if this approach is applied, then its very design reduces the impact of CF-biases on project ranking. It is also demonstrated that even if competing projects are of equal scale, they must still be ranked by incremental comparison. Finally, it is pointed out that the incremental project ranking is the proper approach regardless of which NPV-compatible profitability measure is applied.
Citation Details
Title: Comments on 'Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR.' (internal rate of return; response to D. Asquith and J.E. Bethel, The Engineering Economist, vol. 40, no. 3, p. 287, Spring 1995)
Author: Miroslaw M. Hajdasinski
Publication:Engineering Economist (Refereed)
Date: January 1, 1997
Publisher: Institute of Industrial Engineers, Inc. (IIE)
Volume: v42 Issue: n2 Page: p163(4)
Distributed by Thomson Gale
From the author: In their recent paper (D. Asquith & J.E. Bethel, "Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR," The Engineering Economist, Vol. 40, No. 3 (Spring 1995, pp. 287-294)), the authors propose a project ranking procedure that is supposed to mitigate the impact of cash flow overvaluation by project managers. In the current contribution, it is indicated that this procedure is based upon a project ranking approach that employs the IRR criterion in a theoretically inadequate way. The correct, incremental approach to the IRR-based project ranking is reiterated, and it is shown that if this approach is applied, then its very design reduces the impact of CF-biases on project ranking. It is also demonstrated that even if competing projects are of equal scale, they must still be ranked by incremental comparison. Finally, it is pointed out that the incremental project ranking is the proper approach regardless of which NPV-compatible profitability measure is applied.
Citation Details
Title: Comments on 'Using Heuristics to Evaluate Projects: The Case of Ranking Projects by IRR.' (internal rate of return; response to D. Asquith and J.E. Bethel, The Engineering Economist, vol. 40, no. 3, p. 287, Spring 1995)
Author: Miroslaw M. Hajdasinski
Publication:Engineering Economist (Refereed)
Date: January 1, 1997
Publisher: Institute of Industrial Engineers, Inc. (IIE)
Volume: v42 Issue: n2 Page: p163(4)
Distributed by Thomson Gale
