Sustainable development and project valuation: A data programming approach
Jason West
January 2012
Project valuation methods generally focus on economic returns and ignore wider sustainable development concerns, including environmental and social impacts. In this study we derive a composite index formed as an aggregate of three sub-indices to represent project returns, environmental impacts and social effects, in the absence of a priori dominance of any capital form. The index weights are obtained through solving a series of data envelopment analysis (DEA) optimization models from a set of sub-indices over each project’s life. We assess the reliability and robustness of this approach using a portfolio of mining projects. The sustainability of each project is benchmarked against a ‘best’ and ‘worst’ practice project and the weights of the component indices are derived using only the project portfolio data. The model is found to be relatively robust when tested against different index normalization process. This approach ranks projects according to the most sustainable outcomes without prescribing weights to ensure environmental or social outcomes are met. The design of the model naturally favors projects that adequately address economic, environmental, social, and any other desirable factors relative to the portfolio of projects under assessment. The results provide reliable and robust guidance toward more sustainable business practice.