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Economic Models for R and D Project Selection in the Presence of Project Interactions

Author

Listed:
  • G. Edward Fox

    (School of Management, University of Minnesota, Minneapolis, Minnesota 55455)

  • Norman R. Baker

    (College of Business Administration, University of Cincinnati, Cincinnati, Ohio 45221)

  • John L. Bryant

    (College of Business Administration, University of Cincinnati, Cincinnati, Ohio 45221)

Abstract

One reason existing approaches for dealing with benefit interactions in economic R and D project selection models are difficult to apply is that it is difficult to assess the interactions directly. This difficulty can be traced at least in part to the lack of a modeling framework within which different types of interaction can be identified and related to project and portfolio benefit. In this paper, a modeling framework is proposed within which certain kinds of benefit interactions, called present value (PV) interactions, are assessed indirectly by explicitly modeling R and D project impacts on profitability. Within the proposed framework, the role of traditionally recognized types of interaction in the calculation of present value is clarified, and it is shown that PV interaction exists even when traditionally recognized types of interaction are assumed to be absent. The proposed framework offers one method for assessing PV interactions. An example illustrates the framework and shows that ignoring PV interactions can result in both nonoptimal project selections and resource allocations, even when traditionally recognized types of interactions are absent. The framework and resulting model should be useful in enhancing decision making in firms using PV-based approaches to project selection, whether or not they are interested in using a model that accounts for PV interactions. This is expected since the overall framework provides a basis for analyzing the probable consequences of assuming that no PV interaction is present and for communicating these probable consequences to management

Suggested Citation

  • G. Edward Fox & Norman R. Baker & John L. Bryant, 1984. "Economic Models for R and D Project Selection in the Presence of Project Interactions," Management Science, INFORMS, vol. 30(7), pages 890-902, July.
  • Handle: RePEc:inm:ormnsc:v:30:y:1984:i:7:p:890-902
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    File URL: http://dx.doi.org/10.1287/mnsc.30.7.890
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    References listed on IDEAS

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    1. Ian I. Mitroff, 1972. "The Myth of Objectivity OR Why Science Needs a New Psychology of Science," Management Science, INFORMS, vol. 18(10), pages 613-618, June.
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    Cited by:

    1. Kyparisis, George J. & Gupta, Sushil K. & Ip, Chi-Ming, 1996. "Project selection with discounted returns and multiple constraints," European Journal of Operational Research, Elsevier, vol. 94(1), pages 87-96, October.
    2. Hassanzadeh, Farhad & Modarres, Mohammad & Nemati, Hamid R. & Amoako-Gyampah, Kwasi, 2014. "A robust R&D project portfolio optimization model for pharmaceutical contract research organizations," International Journal of Production Economics, Elsevier, vol. 158(C), pages 18-27.
    3. Medaglia, Andres L. & Graves, Samuel B. & Ringuest, Jeffrey L., 2007. "A multiobjective evolutionary approach for linearly constrained project selection under uncertainty," European Journal of Operational Research, Elsevier, vol. 179(3), pages 869-894, June.
    4. Seifert, Ralf W. & Tancrez, Jean-Sébastien & Biçer, Işık, 2016. "Dynamic product portfolio management with life cycle considerations," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 71-83.
    5. repec:spr:binfse:v:59:y:2017:i:2:d:10.1007_s12599-016-0450-4 is not listed on IDEAS
    6. Christian Meier, 2015. "Identifying Output Interactions Among Is Projects - A Text Mining Approach," Working Papers Dissertations 20, Paderborn University, Faculty of Business Administration and Economics.
    7. Scott A. Shane & Karl T. Ulrich, 2004. "50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science," Management Science, INFORMS, pages 133-144.
    8. Jungkyu Park & Eunnyeong Heo & Dongjun Lee, 2017. "Effective R&D investment planning based on technology spillovers: the case of Korea," Scientometrics, Springer;Akadémiai Kiadó, vol. 111(1), pages 67-82, April.
    9. Santhanam, Radhika & Kyparisis, George J., 1996. "A decision model for interdependent information system project selection," European Journal of Operational Research, Elsevier, vol. 89(2), pages 380-399, March.
    10. Bagloee, Saeed Asadi & Asadi, Mohsen, 2015. "Prioritizing road extension projects with interdependent benefits under time constraint," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 196-216.
    11. Christoph H. Loch & Stylianos Kavadias, 2002. "Dynamic Portfolio Selection of NPD Programs Using Marginal Returns," Management Science, INFORMS, pages 1227-1241.
    12. Chen, Jiaqiong & Askin, Ronald G., 2009. "Project selection, scheduling and resource allocation with time dependent returns," European Journal of Operational Research, Elsevier, vol. 193(1), pages 23-34, February.
    13. Sulin Ba & Jan Stallaert & Andrew B. Whinston, 2001. "Optimal Investment in Knowledge Within a Firm Using a Market Mechanism," Management Science, INFORMS, pages 1203-1219.

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    Keywords

    R&D management; project selection;

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