A Real Options Methodology for R&D Portfolio Selection and Management: Applications to the NASA SBIR Program

23 Pages Posted: 20 Aug 2021 Last revised: 7 Mar 2023

See all articles by Andrea Belz

Andrea Belz

University of Southern California - Viterbi School of Engineering

Jeremy Eckhause

RAND Corporation

Richard Terrile

Government of the United States of America - Jet Propulsion Laboratory

Fernando Zapatero

Boston University - Questrom School of Business

Date Written: February 1, 2023

Abstract

We consider an important class of portfolio management problems in public and private entities: research and development (R\&D) portfolios in which the projects' potential monetary value is not a first-order factor in selection, and the investments are staged. Furthermore, and critical to the decision process, generally these projects are of interest to multiple constituents. We present a real options approach that extends existing methodology to evaluate a portfolio of proposals in each stage of a staggered selection process. Accounting for the criteria of assorted stakeholders, we apply this methodology to a time series of data from the Small Business Innovation Research (SBIR) program of the National Aeronautics and Space Administration (NASA). We use the aerospace standard Technology Readiness Level (TRL) as a way to estimate the factors of interest to the various parties. We demonstrate the flexibility of our approach by proposing different specifications and tradeoffs.

Keywords: R&D portfolio, real options, TRL, SBIR, NASA

JEL Classification: C61, H50, O32, O38

Suggested Citation

Belz, Andrea and Eckhause, Jeremy and Terrile, Richard and Zapatero, Fernando, A Real Options Methodology for R&D Portfolio Selection and Management: Applications to the NASA SBIR Program (February 1, 2023). Boston University Questrom School of Business Research Paper No. 3907466, Available at SSRN: https://ssrn.com/abstract=3907466 or http://dx.doi.org/10.2139/ssrn.3907466

Andrea Belz (Contact Author)

University of Southern California - Viterbi School of Engineering ( email )

3650 McClintock Ave
Los Angeles, CA
United States
2138210829 (Phone)

Jeremy Eckhause

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Richard Terrile

Government of the United States of America - Jet Propulsion Laboratory ( email )

Pasadena, CA
United States

Fernando Zapatero

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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