Computer-aided R&D-portfolio valuation: applied at ABB Asea Brown Boveri Ltd

Technology platforms are developed and maintained by research activities coordinated in corporate research programs. ABB develops strategic technology roadmaps providing well-defined strategic guidelines for R&D-project selection within a corporate research program. The authors describe a project they carried out to value R&D portfolios at ABB. After testing various state-of-the-art valuation methods, such as the Real Options approach (Black Scholes formula, binomial trees, Monte Carlo simulation), decision trees, scenario analysis and tornado sensitivity analysis, they decided to apply Monte Carlo simulation. From their point of view this approach provides the most comprehensive insight of all valuation methods. They used Crystal Ball pro, an MS Excel add-in, to carry out the simulations.