Sustainability-Oriented Financial Resource Allocation in a Project Portfolio through Multi-Criteria Decision-Making

Abstract

Abstract:Modern portfolio theory attempts to maximize the expected return of a portfolio for a given level of portfolio risk, or equivalently minimize risk for a given level of expected return. The reality, however, shows that, when selecting projects to a portfolio and allocating resources in the portfolio, an increasing number of organizations take into account other aspects as well. As a result of the sole purpose (risk-return), it offers only a partial solution for a sustainable organization. Existing project portfolio selection and resource allocation methods and models do not consider sustainability. Therefore, the aim of this article is to develop a sustainability-oriented model of financial resource allocation in a project portfolio by integrating a composite sustainability index of a project into Markowitz's classical risk-return scheme (mean-variance model). The model was developed by applying multi-criteria decision-making methods. The practicability of the model was tested by an empirical study in a selected construction company. The proposed sustainability-oriented financial resource allocation model could be used in allocating financial resources in any type of business. The use of the model would not only help organisations to manage risk and achieve higher return but would also allow carrying out sustainable projects, thereby promoting greater environmental responsibility and giving more consideration to the wellbeing of future generations. Moreover, the model allows quantifying the impact of the integration of sustainability into financial resource allocation on the return of a portfolio.

The Diversification Benefits of Including Carbon Assets in Financial Portfolios

“…The fundamental portfolio selection model was formulated by Markowitz [34] in 1952, and the concrete formulation could be seen in [34,35], which based asset selection on the balance between portfolios' expected return and the corresponding variance, thus called mean-variance (MV) model. While the MV represents a mathematically perfect solution to asset selection, the large variance associated with the estimated of mean and variance matrix undermines its popularity [36][37][38].…”

The Open Innovation Model of Coaching Interaction in Organisations for Sustainable Performance within the Life Cycle

“…Consequently, expert (11) is excluded from a list of experts and the expert's answers are rejected. The questionnaire answers on the appropriateness of the forms and types of coaching to the organizational life cycles are re-calculated while taking into account the competence coefficient for each expert, without taking into account the answers of expert (11).…”

“…The scientists study the issues of sustainable performance from different perspectives. Particular emphasis is placed on incorporation of sustainability considerations into project management, sustainable recourse allocation [11] and measuring sustainability [5,12]. New approaches are emerging to measure sustainable value while taking into account economic, social, environmental, and corporate governance perspective of sustainability [13].…”

Maslow Portfolio Selection for Individuals with Low Financial Sustainability

“…To overcome this limitation, conditional VaR (CVaR) becomes popular because CVaR possesses some attractive theoretical properties including being coherent, consistent with second-order stochastic dominance [12], and easy to operate [13]. Dobrovolskiene and Tamosiuniene [14] develop a sustainability-oriented model of financial resource allocation in a project portfolio by integrating a composite sustainability index of a project into Markowitz's classical mean-variance model.…”