Portfolios of R&D: What is Portfolios of R&D: What is currently known about currently known about

selecting projects as a groupselecting projects as a group?? Jonathan D. LintonJonathan D. Linton

University of Ottawa, CanadaUniversity of Ottawa, Canadalinton@telfer.uottawa.ca.

Thanks to SSHRC for their support of this research and panel

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Problem: Best (Projects vs Problem: Best (Projects vs Portfolio)Portfolio)

Definitions of projects Definition of portfoliosEvaluating projectsEvaluating portfoliosFinancial Portfolio TheoryOpportunitiesNeedsSummary Notes

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Project Definitions Project Definitions Effort to achieve a specific objective within a

schedule and budget target (Cleland & King, 1983)

Human, material and financial resources organized in a novel way, to undertake a unique scope of work within constraints of cost and time (Turner, 1993)

A complex effort, made up of interrelated tasks with a well-defined objective, schedule, and budget (Archer & Ghasemzadeh, 1999)

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Project Definitions Project Definitions

A temporary organization for assigning resources to management of change within the organization as an agency for managing uncertainty (Tunner & Muller, 2003)

A temporary organization and process for a certain goal under constrained time, budget, and resources (Shenhar, 2004)

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Portfolio DefinitionsPortfolio Definitions A group of projects carried out under the

sponsorship/ management of an organization (Archer & Ghasemzadeh, 1999)

An organization of a group of projects - managed together to coordinate interfaces and prioritize resources thereby reducing uncertainty (Turner & Muller, 2003)

The initial screening, selection and prioritization of projects proposals, the concurrent reprioritization and allocation and reallocation of resources to reflect priority (Blichfeldt & Eskerod, 2008)

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Metrics for Projects Metrics for Projects

Financial – NPV, ROI, or OptionsRisk and FeasibilityRelevance, Organization Fit,

Strategic ImportanceCompetitive Advantage – Economic

and Non-EconomicMarket and TechnologyLife CycleInnovation and Creativity

Financial – NPV, ROI, Real OptionsRisk/Feasibility

Market/TechnologyRelevance/Organization Fit /Strategic

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Methods for Evaluating Methods for Evaluating ProjectsProjects

Financial IndicatorsPeer ReviewBCG Matrix – growthBalance Score CardStage Gate ModelDEAAHP/ANPFuzzy Selection

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Visual tools for project Visual tools for project selectionselection

Source: Bell Labs

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Metrics for PortfoliosMetrics for Portfolios

Return – NPV, ROI, OptionsResourcesCapacityRiskProbability of SuccessEfficiencyEffectivenessIP

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Methods for Evaluating Methods for Evaluating PortfoliosPortfolios

R&D Effectiveness IndexReal Options AnalysisConditional Stochastic DominanceMOI Linear ProgramMean-Gini AnalysisDEAFuzzy Selection ModelBalance Score Card

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Issues Specific to Issues Specific to PortfoliosPortfolios

SynergyInterrelationIndependentAlignment with ObjectivesResource – InteractionBenefit - Interaction

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Visually Evaluating Visually Evaluating PortfoliosPortfolios

http://www.vosviewer.com/

maps/journal_application_

domains

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Flaws With Current Flaws With Current ApproachesApproaches

Limited checking for duplicationNot checking for over-representationNot checking for absence of areasNot considering potential of lock-outNot considering absorptive capacityAppropriability often overlooked

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Application of Financial Application of Financial TheoryTheory

Financial Portfolio Theory well developed

Some difficulties, however:Lack of efficient marketsDifference in underlying

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Efficient MarketsEfficient Markets

Buy and Sell at Market Clearing Price

Calculate volatility

Determine relationship between assets

Select Desired Risk/Return Tradeoff on Efficient Frontier

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Difference in UnderlyingDifference in Underlying

Financial Assets – Market Risk Gaussian Distribution

Research Assets – Market and Technical Risk Thick Tails

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What is Needed - easyWhat is Needed - easy

Learn by revisiting existing groups of projects and reassessing them as a portfolio

Assess how differences in FPT affect the selection, valuation and performance of portfolios of research

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Possible Steps ForwardPossible Steps Forward

In a coordinated fashion, consider: Stage of Development Capability Maintenance Technological Lock-Out Appropriability Interrelation Portfolio Diversification Risk – Technical and Market

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What is Needed - difficultWhat is Needed - difficultUnderstanding of underlying distributions for

Basic Science, Applied Science, Technology and Innovation

Methods for Thick Tailed Portfolio Management

National Innovation Policy that considers current national research portfolio to guide future decisions

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Current QuestionsCurrent Questions

Appropriate Balance Between Different Stages of Scientific Inquiry – Basic, Applied, Technology, Innovation

What should the portfolio balance be – including diversity and risk?

How to select projects to ensure that balance reflects objectives?

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SummarySummary

Portfolios are currently just groups of projects in most cases

Need to consider projects in terms of portfolio objectives

Financial Portfolio Theory has some desirable traits, but needs to be developed to reflect the nature of STI

Opportunities exist in seeing how current and past decisions would differ with a portfolio perspective

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Thank you for your attention

Than

Our thanks to SSHRCThe Social Sciences and Humanities Research Council