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A Generalized Fuzzy Optimization Framework for R&D Project Selection Using Real Options Valuation

  • E. Ertugrul Karsak
Part of the Lecture Notes in Computer Science book series (LNCS, volume 3982)

Abstract

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.

Keywords

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.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • E. Ertugrul Karsak
    • 1
  1. 1.Industrial Engineering DepartmentGalatasaray UniversityOrtaköy, IstanbulTurkey

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