An R&D options selection model for investment decisions

Technology centered organisations must be able to identify promising new products or process improvements at an early stage so that the necessary resources can be allocated to those activities. It is essential to invest in targeted R&D projects as opposed to a wide range of ideas so that resources can be focused on successful outcomes. Typically, a number of options and tradeoffs are encountered; the selection of the most appropriate projects is the aim of R&D selection models. Although capital budgeting and financial portfolio management offer a similar style approach, the techniques used for the solution of those is different to that used for R&D project selection. The reasons for this are that project selection is complicated by many factors, such as uncertainty, interrelationships between projects, changes over time and success factors that are difficult to measure. Thus, a mathematical optimisation approach in isolation is not practical. Project selection models not only have to consider these problems but also that there are different types of R&D. The spectrum of R&D ranges from low budget exploratory research to large budget product development. This paper reviews the development of a project selection and evaluation tool that can be applied to a wide range of research, technology and investment decisions. Firstly, the background on project selection models is given. This is followed by the introduction of the model and its application to a sample group of projects. Finally, some conclusions are discussed as to the applicability of such models.