Risk-management of your R&D portfolio

Research and Development is mostly regarded as a high-cost, high-risk, high pay-off gambling game: a good long-term yield, but erratic and infrequent payouts.

That means that just as in (some) gambling games, the chances of a payout can be greatly increased by 1) quantifying the odds 2) selecting bets (in this case projects) accordingly
3) constructing a balanced portfolio.

With each proposed R&D project we associate a cost, a probability of success, and a potential payout. Each of these attributes can be estimated in a number of ways; Novidec employs a payout estimation model that can assess the probable impact of competitor activity in the same area. As the graph shows, the competitive situation can have a strong effect on project attractiveness.

But there is more to portfolio selection than identifying attractive projects. A balanced portfolio can be built based on cost, risk and payout for each project. A mere eight project proposals already give a choice of 255 different portfolios, so optimization methods are used to identify portfolios that fit with corporate strategy. Much like investment strategies, the corporate attitude to risk-taking may very well dominate the choice.

Novidec can help you to develop and implement rational approaches to R&D portfolio management, tailored to your particular situation.

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