Global marketplace and intense competition in the business environment lead organizations to focus on selecting the best R&D project portfolio among available projects using their scarce resources in the most effective manner. This happens to be a sine qua non for high technology firms to sharpen their competitive advantage and realize long-term survival with sustainable growth. To accomplish that, firms should take into account both the uncertainty inherent in R&D using appropriate valuation techniques accounting for flexibility in making investment decisions and all possible interactions between the candidate projects within an optimization framework. This paper provides a fuzzy optimization model for dealing with the complexities and uncertainties regarding the construction of an R&D project portfolio. Real options analysis, which accounts for managerial flexibility, is employed to correct the deficiency of traditional discounted cash flow valuation that excludes any form of flexibility. An example is provided to illustrate the proposed decision approach.
Analytic Hierarchy Process Fuzzy Number Real Option Analytic Network Process Project Selection
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
This is a preview of subscription content, log in to check access.
Dixit, A.K., Pindyck, R.S.: The options approach to capital investment. Harvard Business Review, 105–115 (May-June 1995)Google Scholar
Geske, R., Johnson, H.E.: The American put option valued analytically. The Journal of Finance 39, 1511–1524 (1984)CrossRefGoogle Scholar
Inuiguchi, M., Ramik, J.: Possibilistic linear programming: a brief review of fuzzy mathematical programming and a comparison with stochastic programming in portfolio selection problem. Fuzzy Sets and Systems 111, 3–28 (2000)MATHCrossRefMathSciNetGoogle Scholar
Karsak, E.E., Özogul, C.O.: An options approach to valuing expansion flexibility in flexible manufacturing system investments. The Engineering Economist 47, 169–193 (2002)CrossRefGoogle Scholar
Kuchta, D.: A fuzzy model for R&D project selection with benefit, outcome and resource interactions. The Engineering Economist 46, 164–180 (2001)CrossRefGoogle Scholar
Lee, J.W., Kim, S.H.: Using analytic network process and goal programming for interdependent information system project selection. Computers & Operations Research 27, 367–382 (2000)MATHCrossRefMathSciNetGoogle Scholar
Lee, J., Paxson, D.A.: Valuation of R&D real American sequential exchange options. R&D Management 31, 191–201 (2001)CrossRefGoogle Scholar
Liberatore, M.: An extension of the analytic hierarchy process for industrial R&D project selection and resource allocation. IEEE Trans. Eng. Manage. 34, 12–18 (1987)Google Scholar
Margrabe, W.: The value of an option to exchange one asset for another. The Journal of Finance 33, 177–186 (1978)CrossRefGoogle Scholar
Meade, L.M., Presley, A.: R&D project selection using the analytic network process. IEEE Trans. Eng. Manage. 49, 59–66 (2002)CrossRefGoogle Scholar
Schmidt, R.L.: A model for R&D project selection with combined benefit, outcome and resource interactions. IEEE Trans. Eng. Manage. 40, 403–410 (1993)CrossRefGoogle Scholar
Wang, J., Hwang, W.-L.: A fuzzy set approach for R&D portfolio selection using a real options valuation model. To appear in Omega (2006)Google Scholar
Watters, L.J.: Reduction of integer polynomial programming problems to zero-one linear programming problems. Operations Research 15, 1171–1174 (1967)CrossRefGoogle Scholar
Weingartner, H.M.: Capital budgeting of interrelated projects: survey and synthesis. Management Science 12, 485–516 (1966)CrossRefGoogle Scholar