A Chance-Constrained Integer Goal Programming Model for Capital Budgeting in the Production Area

Abstract

The selection of capital projects in a production environment is complicated by the existence of multiple and conflicting goals. Typical production objectives for cost minimization often conflict with goals for quality, environmental standards, labor relations, etc. This problem of project selection is further complicated by the uncertainty inherent in product demand, the key factor in production management. This paper approaches these complications by employing an integer goal programming (to compensate for multiple conflicting objectives) with chance-constrained capabilities (to reflect uncertainty in product demand). The approach is demonstrated via an in-depth case example of a production problem.