Technology-based projects will often face large uncertainties about costs and timescales– with some being terminated before they have even made any money. Many of the tools used in valuing and selecting projects are only really applicable to large portfolios because they assess value by using statistical concepts such as probability, mean and risk. This article, by Rick Mitchell, Francis Hunt and David Probert, examines how to choose small portfolios of projects without using invalid statistical measures.
The issues addressed in the article are:
- How best to characterise risk and reward when considering only a very small number of projects – where statistical concepts such as average, probability or variance are of no great value;
- How to compare and contrast the values of a small number of projects with different levels of risk and return;
- How to select an optimum small portfolio of risky projects on a rational basis without using a subjective balancing of risk and reward.
The authors say that their approach to these issues is simple and logical – but that it does require a rethinking of what risk and return really mean for single projects and small portfolios.
Read the full paper:
Valuing and comparing small portfolios, Rick Mitchell, Francis Hunt and David Probert, Research and Technology Management (Routledge, Taylor & Francis Group), 2010
Recommended by Rick Mitchell, post by R&D Today admin