Optimization of Technology Development Portfolios

Technology development involves research and development activities aimed to design, test and improve a technology and/or the process of building the technology. Technology development is often an essential part of the operational strategy, during which deployment or implementation decisions are made. In most cases, companies or agencies have several candidate technologies that they can decide to invest and develop. Each of these technologies requires an uncertain amount of investment, and also has probabilistic returns. Given these uncertainties and resource limitations, the objective of the technology portfolio optimization problem is to determine an investment schedule for a fixed planning period such that the expected total return of the invested technologies over an infinite time horizon is maximized. Depending on the application, the set of candidate technologies may also have additional attributes. The technology portfolio management problem is a large scale stochastic optimization model, which is not amenable to any specific method. In this study, we develop a multistage stochastic programming model, which differs from classical stochastic programming models since the times of realizations in the scenario tree are dependent on the decisions made. An efficient solution procedure is developed and presented along with computational results.