Financial planning for new products: Part I—Basis for model formulation

Abstract

In a previous paper the author presented a staged approach methodology for the evaluation and selection of R & D projects. The present paper is intended to serve as its complement. The aim is the formulation of a matching overall long range budget planning policy which will attempt to answer the questions of “how many projects to prove” and “how much to fund” on the basis of satisfying the company growth objective. To achieve the above purpose, a staged budget planning model has been developed which recognizes and utilizes the specific attributes of the various R & D stages. Tje project stage survival rate and project stage cost ratio concepts are discussed. A steady flow of projects through the various R & D stage is maintained. The aim of the program is to produce periodically a planned number of new products fro commercial investment. This methodology may apply to R & D program with a sufficient number of moderately sized projects that justify the use of survival rate and cost ratio values. It should be constructed as a tentative effort for possible use within the staged limitations.