Shehab, Shaza Imad (2020-11). On the Application of Modern Portfolio Theory to Process Plant Investments. Master's Thesis. Thesis uri icon


  • Decision-making among process plant investments has been, and still is, commonly based on typical profitability measures like the Net Present Value (NPV) and the Return on Investment (ROI). This evaluation is done based on single plant-to-plant performance. However, the portfolio nature of processes, such as a company that produces several products from various technologies, is not evaluated. The study of portfolio optimization, that guides investment decision-making, has been implemented in several fields outside the chemical engineering domain. For instance, the Modern Portfolio Theory (MPT) is used to determine the risk return relationship of various portfolios. Then, this study will evaluate its applicability and potential on process plant portfolio investments to aid at the decision-making stage. The MPT-based methodology was developed for process plant portfolios. Then, this methodology was applied on a case study of six process plants. Various MPT curves were developed that differ by variability rate (Annual and Monthly). Another MPT analysis studies the effect of including economies of scale. Several MPT portfolios will be contrasted with alternatively produced portfolios constructed from the commonly used economic metrics (e.g. NPV/ROI). Results show that NPV/ROI indicators miss more than 50% of attractive portfolio investments when considering annual variability. For monthly variability, MPT portfolios constantly outperformed the alternatively produced portfolios. The same is observed when economies of scale were accounted for. Then, MPT under uncertainty may guide investors to select better process plant portfolios.

publication date

  • November 2020