Valuation methods in Project Portfolio Optimization - Focus on Real Options
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<math> d_{2,i} = d_{1,i} - \sigma_{i} \sqrt{T_{i,1}} </math><br> | <math> d_{2,i} = d_{1,i} - \sigma_{i} \sqrt{T_{i,1}} </math><br> | ||
| − | References | + | {{Démonstration|<math>\begin{align} |
| + | \frac{1}{n} \sum_{i=1}^n \left( x_i - \overline{x}\right)^2 | ||
| + | &= \frac{1}{n} \sum_{i=1}^n \left( x_i^2 -2x_i\bar x +\overline{x}^2\right)&\\ | ||
| + | &= \frac{1}{n} \sum_{i=1}^n x_i^2 -\frac{1}{n} \sum_{i=1}^n 2x_i\bar x +\frac{1}{n} \sum_{i=1}^n\bar{x}^2\\ | ||
| + | &= \frac{1}{n} \sum_{i=1}^n x_i^2 -\frac{2\bar x}{n} \sum_{i=1}^n x_i +\frac{1}{n} n\bar{x}^2\\ | ||
| + | &= \frac{1}{n} \sum_{i=1}^n x_i^2 -2\bar x^2 +\bar{x}^2\\ | ||
| + | &= \frac{1}{n} \sum_{i=1}^n x_i^2 -\bar{x}^2\\ | ||
| + | \end{align}</math> | ||
| + | }} | ||
| + | |||
| + | ==References== | ||
<references/> | <references/> | ||
Revision as of 18:37, 16 September 2016
Abstract
Valuation methods are critical supporting tools for any decision in Project Portfolio Management, so as to optimize the project portfolio in terms of expected return for the different values (e.g. money, knowledge, strategic alignment). This article quickly presents general valuation techniques for generic portfolio management (NPV, DCF, see below), but might be more relevant as applied to R&D portfolio selection and optimization.
A project portfolio is optimized by evaluating a multi-objective ranking based on (1) the expected return, (2) the uncertainty, and (3) the strategic fit[1] , while optimizing several budgets allocation:
- Financial budget,
- Technological or knowledge-based budget,
- Budget based on the market uncertainty
- Critical resources allocation budget
R&D portfolios optimization is based on project valuation, and an alternative to classical methods such as NPV (Net Present Valuation) and DCF (Discounted Cash Flow) is the real options valuation.
The core principle is similar to the principle of financial options: holding a decision which is to be made is equivalent to have an option, which can be valued. The only difference is the materiality of the option (‘real’), as opposed to the abstract nature of a financial option.
The real option valuation is based on a mixed set of input data, balanced between the expected return, the expected consumed resources and the different risk factors.
sandbox
According to the number of stages of development, formula
- 1 stage of development: simple investment decision, therefore
- 2 stages of development: Black and Scholes formula:
where:
References
- ↑ C. Carlsson et al. / Internat. J. Approx. Reason. 44 (2007) 93–105 p95
