Capital budgeting under resource rationing: Explicit enumeration using Lotus 1-2-3 as an Alternative to Linear Programming
The article aims to present an alternate methodology, explicit enumeration, for solving the resource rationing problem by using the data table capability of Lotus 1-2-3 to consider all possible combinations of projects. The explicit enumeration technique evaluates all combinations of capital projects and then rank orders the feasible outcomes to determine the combinations that provide the most value. This technique has several advantages over LP and IP. First, this method uses Lotus 1-2-3 and other spreadsheets that include the data table capability. Second, explicit enumeration is an easily understood intuitive technique that avoids reliance on black box solutions generated by software that may not be well understood. Both linear programming and explicit enumeration require a known menu of capital projects; they address the problem of choosing the best set of projects from this known menu. Because of this, these methodologies may not be usable by firms for which the menu of choices cannot be determined. The likelihood that the menu of investment alternatives will be known varies across industries.
Recommended CitationPlane, Donald R. and Trifts, Jack, "Capital budgeting under resource rationing: Explicit enumeration using Lotus 1-2-3 as an Alternative to Linear Programming" (1993). Finance Journal Articles. Paper 24.