An Optimization Model for Corporate Financial Planning

Abstract

This paper describes the development and actual implementation of an optimization model for strategic planning in a large diversified organization. In contrast to previous discussions of the applicability of financial theory and mathematical programming methods in corporate planning, emphasis is placed on providing useful decision information within the practical limitations of theory, available computational capabilities, and established planning practices. The corporate model reflects the full range of financial decisions, including internal capital budgeting, acquisitions, divestments, debt creation/repayment, stock issue/repurchase, and dividend payout. Operating as an integral part of the corporate planning process, the mixed integer programming model selects optimal investment and financing programs over a multiperiod planning horizon. An on-line computational system permits extensive parametric analysis. The major features of the model, the supporting computational system, and implementation experience are presented.