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Managing technology development for safety-critical systems

Listed author(s):
  • Sachon, Marc


    (IESE Business School)

  • Paté-Cornell, Elisabeth


    (IESE Business School)

Registered author(s):

    This paper presents a model that determines the optimal budget allocation strategy for the development of new technologies for safety-critical systems over multiple decision periods. The case of the development of a hypersonic passenger airplane is used as an illustration. The model takes into account both the probability of technology development success as a function of the allocated budget, and the probability of operational performance of the final system. It assumes that the strategy is to consider (and possibly fund) several approaches to the development of each technology to maximize the probability of development success. The model thus decomposes the system's development process into multiple technology development modules (one for each technology needed), each involving a number of alternative projects. There is a tradeoff between development speed and operational reliability when the budget must be allocated among alternative technology projects with different probabilities of development success and operational reliability (e.g., an easily and quickly developed technology may have little robustness). The probabilities of development and operational failures are balanced by a risk analysis approach which allows the decision maker to optimize the budget allocation among different projects in the development program at the beginning of each budget period. The model indicates that by considering reliability in the R&D management process, the decision maker can make better decisions, optimizing the balance between development time, cost, and robustness of safety-critical systems.

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    Paper provided by IESE Business School in its series IESE Research Papers with number D/465.

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    Length: 22 pages
    Date of creation: 24 May 2002
    Handle: RePEc:ebg:iesewp:d-0465
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    IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN

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    1. Matthew J. Liberatore & George J. Titus, 1983. "The Practice of Management Science in R&D Project Management," Management Science, INFORMS, vol. 29(8), pages 962-974, August.
    2. C. Derman & G. J. Lieberman & S. M. Ross, 1976. "Optimal System Allocations with Penalty Costs," Management Science, INFORMS, vol. 23(4), pages 399-403, December.
    3. Abdul Ali & Manohar U. Kalwani & Dan Kovenock, 1993. "Selecting Product Development Projects: Pioneering versus Incremental Innovation Strategies," Management Science, INFORMS, vol. 39(3), pages 255-274, March.
    4. Jensen, Elizabeth J, 1987. "Research Expenditures and the Discovery of New Drugs," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 83-95, September.
    5. James E. Smith & Robert F. Nau, 1995. "Valuing Risky Projects: Option Pricing Theory and Decision Analysis," Management Science, INFORMS, vol. 41(5), pages 795-816, May.
    6. Aoki, Reiko, 1991. "R&D Competition for Product Innovation: An Endless Race," American Economic Review, American Economic Association, vol. 81(2), pages 252-256, May.
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