Prioritizing R&D Projects in the Face of Technological and Market Uncertainty: Combining Scenario Analysis and DEA A Research Paper I

Assessing the priorities of a portfolio of R&D projects, uncertainty pertains not only to the narrow outcome ofthe product development efforts but also to the state of future technology and market conditions in general. A few alternative scenarios are spelled out and each project under each scenario is rated using data envelopment analysis (DEA). In an application using data from a large telecommunications manufacturer and distributor, a set of development projects were rated under alternative scenarios for the future fortune ofthe company. Each scenario was characterized by a set of technology, market and social "drivers" such as the technological progress in optical communications, the success of the planned EU common currency etc. Each individual event (a single project under a particular scenario projected for a particular future time period) was recorded as a vector of inputs and a vector of outputs. The events were ranked using DEA. The final prioritization of the R&D projects was established calculating ordinal ranks and validating the obtained rankings using the Kruskal-Wallis non-parametric test.