Abstract
A typical capital rationing problem takes place at the beginning of a fiscal cycle, where a project portfolio is chosen to maximize expected return subject to a budget constraint. This article examines mid-cycle capital planning, which occurs near the end of a fiscal cycle. Motivated by the “budget-lapsing” rule, the decision-maker embarks on a “year-end spending spree.” We use chance-constrained methodology to address two new constraints: reaching profit target set at the beginning of the year and exhausting the budget completely. Data from Lockheed Martin Space Systems illustrate how the optimal portfolio selection is influenced by these constraints.
ACKNOWLEDGEMENTS
The author thanks the anonymous referees and the editor for their valuable and constructive comments that improved the article both in content and presentation. The author is also grateful to Charles T. Morley of Lockheed Martin Space Systems for his assistance with data acquired in the study.