Business value estimation of product development project by introducing strategic option into real option

Abstract

This study proposes an evaluation model of business value which provides information for more reliable decision making considering its uncertainty, to create strategic options of product development projects which involves various uncertain factors throughout the life cycle stages. In order to support the modeling process of the reverse profit-loss calculation, this paper proposes a calculation method of business value based on empirical relationships between the variables by classifying uncertain variables and fixed variables, and via analyzing dependency between variables using Design Structure Matrix method. The value of the product development project is evaluated as EPV (expected present value) and NPV (Net Present Value). A generation method of the strategic options and project activities is proposed based on the calculation of EPV and NPV. A portfolio method is presented to select best strategic options which make largest project value. The proposed method enables a project manager to compare the strategic option's overall profit by calculating its cost and income. Proposed models and methodology is applied to a product development project its name is i-painter. The i-painter means a new wall-repairing robot for maintaining building structures in developing countries. I-painter is mechatronics machinery which has new function, new structure, and new market. A prototype of i-painter is developed and evaluated. By estimation of the project value of i-painter, contributions of applying proposed model are confirmed. The application result shows that the proposed method can help the project manager to (1) select best strategic options, and (2) quit the development project with less cost from early lifecycle stage.