A fuzzy approach to R&D project portfolio selection

Christer Carlsson, Fúller Robert, Markku Heikkilä, Majlender Péter

Research output: Contribution to journalArticleScientificpeer-review

160 Citations (Scopus)

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.

Original languageUndefined/Unknown
Pages (from-to)93–105
JournalInternational Journal of Approximate Reasoning
Volume44
Issue number2
DOIs
Publication statusPublished - 2007
MoE publication typeA1 Journal article-refereed

Keywords

  • Real option valuation
  • Fuzzy numbers

Cite this