Product Development Plans^†

Abstract

A decision as to which of several possible products should be developed involves at least two different phases:

(a) The technical phase, during which attempts are made to improve some aspects of the product.

(b) The commercial phase, during which the product is produced and hopefully sold.

Both phases are uncertain and this paper tries to provide explicit treatment of the combined uncertainty in the two phases.

The expected value of return is maximized subject to budget constraints and chance-constraints on total return and/or pay-back requirements.

The distributions consist of spikes and Poisson distributions and a formula is developed to compute compound probabilities. Dynamic programming is used for the numerical solution.

An application of the method in a company is described.