A fuzzy approach to R&D project portfolio selection

  • Authors:

  • Christer Carlsson;Robert Fullér;Markku Heikkilä;Péter Majlender

  • Affiliations:

  • Institute for Advanced Management Systems Research, Åbo Akademi University, Lemminkäinengatan 14B, FIN-20520 Åbo, Finland;Department of Operations Research, Eötvös Loránd University, Pázmány Péter sétány 1C, H-1117 Budapest, Hungary;Turku Centre for Computer Science, Åbo Akademi University, Lemminkäinengatan 14A, FIN-20520 Åbo, Finland and Institute for Advanced Management Systems Research, Åbo Akademi Uni ...;Institute for Advanced Management Systems Research, Åbo Akademi University, Lemminkäinengatan 14B, FIN-20520 Åbo, Finland

  • Venue:
  • International Journal of Approximate Reasoning
  • Year:
  • 2007

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Abstract

A major advance in the development of project selection tools came with the application of options reasoning in the field of Research and Development (R&D). The options approach to project evaluation seeks to correct the deficiencies of traditional methods of valuation through the recognition that managerial flexibility can bring significant value to projects. Our main concern is how to deal with non-statistical imprecision we encounter when judging or estimating future cash flows. In this paper, we develop a methodology for valuing options on R&D projects, when future cash flows are estimated by trapezoidal fuzzy numbers. In particular, we present a fuzzy mixed integer programming model for the R&D optimal portfolio selection problem, and discuss how our methodology can be used to build decision support tools for optimal R&D project selection in a corporate environment.