Economic Valuation of R&D Programs in Consideration of Strategic Flexibility

Under the circumstances of increasing uncertainty, strategic flexibility has become an essential element on which any R&D management system should be based. Unfortunately, however, the present R&D management system for government sponsored R&D programs cannot be said to be flexible enough to effectively respond to various threats such as technological failure, significant changes in competition environment, and so on. This paper presents a new scheme for R&D planning and economic assessment with strategic flexibility, which has been applied to a real R&D program. According to the newly presented R&D management system, economic valuation has been conducted for various alternative scenarios based on real option theory. Each of the alternative scenarios has different scheme for R&D process and the assessment results has been fed back to choose superior strategic scheme. In conclusion, introducing strategic flexibility into R&D planning and economic assessment can enhance the value of R&D project remarkably.