A Decision Support Approach for R&D Project Selection

Abstract

Research and development (R&D) is often a well spring of new ideas and concepts leading to the development of commercially viable products and processes. An organization’s future market and financial positions may depend in large measure on the R&D project proposals which are selected. A variety of financial, market, technical, and manufacturing criteria may influence the selection decision. The importance of specific criteria varies by type of R&D activity, and the extent to which a particular project supports business objectives. This paper describes an approach for modeling the R&D project selection decision using the Analytic Hierarchy Process. The AHP represents an improvement over other well-known scoring approaches since the criteria weights or priorities established by the AΗΡ are not based on arbitrary scales, but use a ratio scale for human judgments. The paper begins with a brief review of the R&D project selection literature, leading to a description of the desired characteristics for a decision support system for project selection. For a specific R&D strategy, namely, new product development, an AHP model is developed using an illustrative example. For situations requiring a large number of projects to be evaluated, the AΗΡ model is expanded to include a series of performance ratings for each criterion. The performance ratings and weights for each criterion are transferred to a spreadsheet program which produces the final project rankings. The resulting project priorities or scores are included in an integer programming model to assist in the project funding decisions. The relationship between the integer programming approach and a form of benefit-cost analysis is discussed and illustrated. Two extensions of the AHP approach are then presented. The first addresses situations requiring the evaluation of a broader set of project selection criteria. The second illustrates how the AHP project selection model can be linked to the strategic planning process through an analysis of the mission, objectives, and strategies of the business. The paper concludes with a discussion of future areas of research.