A new method for valuing R&D investments: a qualitative and quantitative evaluation

Summary form only given. The requirements of the new economy can be seen partly as an increase of social and intellectual capital in companies through individual and organizational learning. The role of those employees generating new ideas and products is increasing. Innovations are becoming more important, as they secure the future cash flow of the company, as well as increasing shareholder value through expectations. The prices paid for the innovations in acquisitions are sky high as companies compete for these innovation-generating resources. However, it is difficult to understand the real value and risks of these investments. Managers find it hard to identify the critical factors and the drivers behind these kinds of changes in the turbulent business environment. Traditional investment evaluation methods and tools are partly outdated in this context. We need new prescriptive tools, such as real option valuation, and we also need new descriptive tools in evaluation of the investments to find out all the risks and challenges. R&D investments bring even more challenge, as they normally include both quantitative technological risks as well as risks and opportunities hiding behind qualitative, mainly human related factors. We are creating a new framework, as well as new methods, to qualify and quantify the drivers and variables affecting the total value of the R&D investment. Operational technology management in the companies need helpful tools to systematize the evaluation of R&D project proposal in the form of executive decision support system (EDSS). The ultimate goal is to help management to identify the coming new star products.