Using decision analysis to value R&D projects

• Main Author: DE REYCK, Bert
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2009
• Subjects: Business Administration, Management, and Operations; Management Information Systems
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6772; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7769/viewcontent/BloomsburyPubli_2014_UsingDecisionAnalysis_QFINANCETheUltimateRe__1_.pdf
• Institution: Singapore Management University

Project portfolio management, the equivalent of financial portfolio management but focused on R&D projects rather than financial assets, often relies on decision analysis methods to value projects rather than traditional financial valuation methods such as net present value (NPV). In finance, the idea of managing portfolios of assets goes back a long time, with the first formal methods being developed in the 1950s. Simply put, assembling a portfolio of stocks, bonds, and other financial instruments balances the risk a manager is taking with any one of the investments. Over time, this same idea has also taken hold for managing a portfolio of R&D projects, where it is referred to as project portfolio management.