A method for allocating R & D expenditures

The analytical problems of developing quantitative techniques for R & D investment management are often complicated by the existence of conflicting goals. Corporate goals may require the R & D manager to simultaneously seek the highest probable profits, the largest probable number of successes, and the greatest probable profits per dollar spent. Departmental goals may restrict the manager to some maximum budget, a minimum number of projects to be worked on, and minimum levels of accomplishment on specific projects. In a sense, then, the research manager is faced with a constrained multiple-output production problem: how much to spend on which project and how much to spend overall. This paper shows how a slight modification of Hess' approach to project selection 2 and an analogy to the theoretical economics of a multiple-product factory 4 have been used to help our research management simultaneously solve these project selection, resource allocation, and budget determination problems. Most approaches in the literature have treated these three problems separately 1, 3.