Week 6: Interactive activity (ANSWERED)

QUESTION

6.1 Learning Outcomes:

Familiarize with the wide variety of methods available (both quantitative and qualitative) to evaluate innovation projects.
Highlight the important role played by managerial assumptions in the accuracy and utility of any measure used.
Emphasize the importance of a balanced R&D project portfolio (i.e. advanced R&D, breakthrough, platform, and derivative).

6.2Action Required:

Watch the short video in the following link

https://www.youtube.com/watch?v=0QOdd45aZ1o

6.3 Test your Knowledge (Question):

Q. Discusses how managers should select and balance their R&D portfolio, as well as the advantages and disadvantages of some of the most often used tools for project evaluation.

ANSWER

Interactive Activity: How Managers Should Select and Balance their R&D Portfolio

To select and manage an R&D portfolio, the managers need to have portfolio management skills made up of decision processes. The managers must keep an active list of new products and update, review and revise R&D projects. Therefore, there is a need to consider optimizing profitability when selecting a portfolio such that the constraints of resources and timing are factored in.

First, managers need to evaluate the net present value (NPV), which reflects the potential worth of the projects considered. The risk and uncertainty factor is weighed into the NPV to assess how the financial calculations will be done to expose risks and uncertainties in the project. Still, the internal rate of return (IRR) can guide selecting and balancing an R&D portfolio as it measures the robustness of profitability through the necessary calculations. Since the suggestions given are explicit, there are tips on how managers can select and balance their portfolios.

Additionally, managers can select a portfolio that reflects the company’s strategic intent. Afterward, they can balance off with ensuring that resources are allocated to important businesses or markets. However, the selection should ensure a balance between risk and reward, although this does not mean that high-risk project portfolios should be avoided. Instead, they can be used to get rid of inappropriate bias. Nonetheless, the firm’s strategic positioning should be the number one factor in selecting and balancing the R&D portfolio.

Advantages and Disadvantages of Some of the Most Often Used Tools for Project Evaluation.

Project evaluation tools have proved crucial to ensuring collaboration and teamwork in real-time. Their flexibility and automation have helped project managers ensure the cost and time factors are managed properly while sharing resources between the project subsets. However, the most often used tools have limitations, like restricting flexibility with regard to task management and allocation. Still, the cost aspect, i.e., the tools, require a costly investment to work effectively. Also, if the tools are used without the necessary skills, their execution may bring challenges to the organization.

References

Cooper, R. G., Edgett, S. J., & Kleinschmidt, E. J. (1998). Best Practices for Managing R&D Portfolios. Research-Technology Management, 41(4), 20-33. http://dx.doi.org/10.1080/08956308.1998.11671219

Rangaswamy, A., & Lilien, G. L. (1997). Software Tools for New Product Development. Journal of Marketing Research, 34(1), 177-184. https://doi.org/10.1177/002224379703400115