Know When to Fold ‘Em: An Empirical Description of Risk Management in Public Research Funding
30 Pages Posted: 13 Oct 2018
Date Written: September 20, 2018
Research funding programs generally attempt to optimize the risk level of their investments, yet it is difficult to assess this risk in the face of the inherent uncertainty associated with knowledge production. While active project management has been established as way to mitigate risk in private sector R&D management, public research programs typically take the opposite approach of allowing awardees to explore freely. We study the use of active project management at the US Department of Energy’s Advanced Research Projects Agency – Energy (ARPA-E) and how it has allowed ARPA-E program directors to tailor the agency’s exposure to risk. Program directors at ARPA-E are given a set of real options with which to manage projects: abandon, contract or expand project budgets or timelines. We use internal data from ARPA-E to show how active project management enables risk mitigation across a portfolio of research projects. In general, failing projects are contracted or abandoned. Projects that receive poor performance reviews from program directors are especially likely to be shortened or terminated entirely, and these same projects are less likely to have generated research outputs, compared to those of ultimately similar size.
Keywords: R&D funding, project management, real options, managerial flexibility
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