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A Fuzzy Approach to R&D Project Selection

Christer Carlsson, Robert Fullér, Péter Majlender, A Fuzzy Approach to R&D Project Selection. In: Proceedings of the Fourth Conference of the European Society for Fuzzy Logic and Technology, 2005.

Abstract:

The complexity of R&D investment projects
makes this task especially challenging. R&D investments
are characterized by multiple sources
of uncertainty, and produce cash flows only after
many potentially unpredictable stages of research.
The net present value (NPV) rule and other discounted
cash flow techniques (DCF) for making
R&D investment decisions seem to be inappropriate
to build a portfolio of R&D projects as
they favor short term projects in relatively certain
markets over long term and relatively uncertain
projects. Since many new products are
identified as failures during the R&D stages, the
possibility of refraining from market introduction
may add a significant value to the NPV of the
R&D project. Therefore R&D investments can
be interpreted as the price of an option on major
follow-on investments. In this paper we describe
some basic properties of the fuzzy real options approach
for research and development project evaluation,
when the present values of future net cash
flows and expected costs are estimated by fuzzy
numbers of trapezoidal form.

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Abstract in PDF-format

BibTeX entry:

@INPROCEEDINGS{inpCaFuMa05b,
  title = {A Fuzzy Approach to R&D Project Selection},
  booktitle = {Proceedings of the Fourth Conference of the European Society for Fuzzy Logic and Technology},
  author = {Carlsson, Christer and Fullér, Robert and Majlender, Péter},
  year = {2005},
  keywords = {Real option, R&D investment project, possibilistic mean value, possibilistic variance},
}

Belongs to TUCS Research Unit(s): Other

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