Managerial lessons on relevance and measurability in R&D project valuation

Abstract

PurposeComprehensive R&D project valuation calls for internal information on, for example, R&D investments as well as external information such as market projections that relate to the expectations on product's life and revenue cash flows. Given the versatility of information needs, the valuation is generally expected to be challenging during R&D. The purpose of this paper is to analyze the perceived feasibility of R&D project valuation in real‐life organizations and discuss possibilities to increase the relevance of measurement for managing value creation.Design/methodology/approachThe study is based on empirical data gathered by a questionnaire targeted at companies representing different industries in Finland. The data are analyzed in terms of company size, R&D intensity and the nature of the development activity (product or service).FindingsThe results describe how the managers responsible for R&D experience the importance and measurability of different elements potentially relevant for the success of a project. It was discovered that things that were considered important were generally perceived as challenging to apply in practice.Practical implicationsThe paper lists several managerial activities for improving R&D evaluation practices. As a managerial contribution, the paper develops a framework for identifying different types of measurement elements.Originality/valueBased on the empirical findings, a number of suggestions are made for improving the measurement of various elements of value. The paper elaborates the potential role of a number of indirect and less obvious aspects in association with R&D project value: the features of developed product's life cycle, created intellectual capital, emerging real options and windows of opportunity.