Challenges of estimating pioneering R&D project profitability. (5th January 2006)

• Record Type: Journal Article
• Authors: Varila, Mikko; Sievanen, Matti
• Is Part Of: International journal of technology intelligence and planning. Volume 1:Number 4(2005)
• Page Start: 424
• Page End: 440
• Publication Date: 2006-01-05
• Subjects: research and development -- R&amp -- D -- new product development -- NPD -- process modelling -- high-tech products -- SMEs -- profitability estimation -- management accounting -- risk analysis -- real options -- semiconductor industry -- pioneering projects -- innovation -- decision tree; Technological innovations -- Periodicals; Research, Industrial -- Periodicals; Knowledge management -- Periodicals; 658.403805
• Languages: English
• ISSNs: 1740-2832

Abstract

Expected profitability is an important criterion when evaluating new product development projects, but difficult to measure when a product includes new-to-the-world technology. R&D in high-tech environment, product development process models, and profitability estimation methods were studied on the basis of the literature and a case project in the semiconductor industry. The main challenge for estimating the profitability of a pioneering project is the slow accumulation of information until the late stages of the project. Formal stage-gate process models are difficult to apply because of the iterative nature of the projects. Decision tree and risk analysis are suggested in lieu of traditional Discounted Cash Flow (DCF) methods to increase understanding of a variety of options and the effects of different variables on the result.