A fuzzy approach to R and D project selection

Christer Carlsson, Robert Fullér, Péter Majlender

Research output: Chapter in Book/Report/Conference proceedingConference contribution

2 Citations (Scopus)

Abstract

The complexity of R and D investment projects makes this task especially challenging. R and 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 and D investment decisions seem to be inappropriate to build a portfolio of R and 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 and D stages, the possibility of refraining from market introduction may add a significant value to the NPV of the R and D project. Therefore R and 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.

Original languageEnglish
Title of host publicationProceedings - 4th Conference of the European Society for Fuzzy Logic and Technology and 11th French Days on Fuzzy Logic and Applications, EUSFLAT-LFA 2005 Joint Conference
Pages536-540
Number of pages5
Publication statusPublished - Dec 1 2005
EventJoint 4th Conference of the European Society for Fuzzy Logic and Technology, EUSFLAT 2005 and 11th French Days on Fuzzy Logic and Applications, LFA 2005 - Barcelona, Spain
Duration: Sep 7 2005Sep 9 2005

Publication series

NameProceedings - 4th Conference of the European Society for Fuzzy Logic and Technology and 11th French Days on Fuzzy Logic and Applications, EUSFLAT-LFA 2005 Joint Conference

Other

OtherJoint 4th Conference of the European Society for Fuzzy Logic and Technology, EUSFLAT 2005 and 11th French Days on Fuzzy Logic and Applications, LFA 2005
CountrySpain
CityBarcelona
Period9/7/059/9/05

Keywords

  • Possibilistic mean value
  • Possibilistic variance
  • R and D investment project
  • Real option

ASJC Scopus subject areas

  • Computational Theory and Mathematics
  • Information Systems

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    Carlsson, C., Fullér, R., & Majlender, P. (2005). A fuzzy approach to R and D project selection. In Proceedings - 4th Conference of the European Society for Fuzzy Logic and Technology and 11th French Days on Fuzzy Logic and Applications, EUSFLAT-LFA 2005 Joint Conference (pp. 536-540). (Proceedings - 4th Conference of the European Society for Fuzzy Logic and Technology and 11th French Days on Fuzzy Logic and Applications, EUSFLAT-LFA 2005 Joint Conference).