Chapter

Portfolio Decision Analysis

Volume 162 of the series International Series in Operations Research & Management Science pp 283-331

Date:

Current and Cutting Edge Methods of Portfolio Decision Analysis in Pharmaceutical R&D

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Abstract

The R&D, regulatory, and marketing process in the pharmaceutical industry have distinct differences in timing, risk, opportunity, compliance, and cost structure compared to most other industries, making portions of portfolio decision analysis (PDA) significantly different. We will cover these differences and how PDA methods need to adapt to be most useful. We will address concepts of project valuation, portfolio prioritization, portfolio uncertainty, portfolio balance, and portfolio optimization. One goal of this chapter is to introduce the readers to concepts and methods which may not be used or even considered in their organizations, as well as to put the methods currently being used into context. We will present a methodology growing in popularity within PDA of discovery and early development portfolios– multiple objective decision analysis (MODA). A major theme throughout this chapter is a focus on portfolio objectives, rather than project goals, values, and risks. So many companies still focus their analytical efforts on project level valuation and prioritization, missing chances to help the organization meet portfolio level goals, fill company levels gaps, and help leaders conduct portfolio level risk management. We explore the idea that subportfolios exist, and different PDA methods may be more successfully implemented in one subportfolio than others. Finally, maximizing value, managing risk, and aligning decision making with company values requires an integrated portfolio management process, which we address at the end of the chapter.