OVERVIEW:R&D managers express displeasure with the state of the art in portfolio decision models and are often doubtful about their firm's current portfolio of projects. Many feel that conventional portfolio decision models are impractical, requiring data that are almost impossible to estimate, or fail to take into account the risk-mitigating effects of diversification across a portfolio. The new approach presented here is scientifically rigorous, yet simple and practical. It can be implemented easily using only an EXCEL spreadsheet, and requires as inputs only the estimated success probabilities and payoffs of each R&D project. The model develops priorities for each of the R&D projects, which take into account the joint risk of the entire portfolio. The project priorities developed by this model are closely correlated with the internally established priorities for 54 R&D projects in two large ethical pharmaceutical firms.
No takes yet. Share an insight, caveat, or question.
Ringuest et al. (1999) studied this question.
Synapse has enriched one closely related paper. Consider it for comparative context: