You are the senior manager in charge of innovation at your company. Over the past several years you company has done, only OKAY, in terms of developing a new-product development portfolio. After attending Trine University Innovation Days and listening to students discuss the importance of several strategies in selecting profitable projects through managing resources and making tough decisions on what projects live and what projects die, you have decided to take this approach to developing your company's portfolio.

After reviewing these strategies for new-product development with your director of R&D, he has decided to provide you with the necessary budget and man-power to revolutionize your company's new product portfolio. However, he noticed several interesting analysis tools based on your review of the Innovation Days, and has tasked you and your team with presenting four (4) scenarios for his review before moving forward with the go/kill decision point.

As luck would have it, your team has passed through Discovery and Scoping, and in the second screen you have already narrowed the number of projects to nine (9). The scenarios your director has provided you are as follows:

Scenario 1 - NPV, Business as Usual

Eliminate the Negative Projects

The team has been working throughout the Pre-development stage in order to get an understanding of the present value of each of the (9) projects by understanding market pricing and the position within the market of each of the prospective projects, among other things. This analysis has given the team accurate information surrounding the overall development costs and costs to commercialize for each project as well. As a part of your normal business strategy, calculate report analyzing the net present value of each project, rank those projects, and provide a Go/Kill recommendation for each.

Scenario 2 - NPV PI, A New Ranking Strategy with a Budget

$25M Budget

As your company looks to manage resources, your director wants to understand how you can maximize your Bang-for-buck on the work your team is doing, and has asked you to add a NPV productivity analysis to your Go/Kill decision process. Additionally, he has capped you at $25M. Calculate report analyzing the NPV PI of each project, rank those projects, and provide a Go/Kill recommendation for each, maintaining your $25M total budget (development + commercialization). Maximize the NPV of your portfolio using this method.

Scenario 3 - ECV PI, Understanding The Expected Commercial Value

$25M Budget

Your director is interested in understanding the expected commercial value method and how it might impact investment decisions. He also wants to maximize the bang for buck so he has asked you to add the expected commercial value and ECV PI to your analysis. Calculate report analyzing the ECV PI of each project, rank those projects, and provide a Go/Kill recommendation for each, maintaining your $25M total budget. Maximize the ECV of your portfolio using this method.

Scenario 4 - ECV PI, A Trimmed Budget, and Modified Risk

$17.5M Budget, Minimize Risk

Your director, given the ability to implement risk into the decision process, wants to evaluate one additional scenario. The VP mention in his staff meeting last week that the market is changing and he may be implementing a 30% reduction in budgets across the company. Assuming this information to be true, your team has created a scenario based on the changing market that has updated rick assessments forboth the probability of commercial and technical success. Using this information, calculate report analyzing the ECV PI of each project, rank those projects, and provide a Go/Kill recommendation for each, maintaining your $17.5M total budget. Maximize the ECV of your portfolio using this method and new data.

Assignment Data

Please refer to the attached Excel file.

Assignment Overview and Requirements

Use the information provided, for PV and Risk, in order to complete the tables of data for each scenario.

Describe what the difference between each type of financial tool is (NPV, PI, ECV....), how it's calculated, and the strengths and weaknesses of each tool.

Each scenario has a specific outcome. Discuss the similarities and differences in those outcomes. How do the outcomes differ from your predictions? How are the outcomes similar to what you predicted?