For many companies, research and development is what keeps the business up to date and a step in front of their competitors. In industries like pharmaceuticals, chemistry, military, and technology, R and D is a crucial department.
Some companies relegate their R and D activities to a specific department, while others treat it as an ongoing process that permeates the whole organization. June Pharmaceuticals Co. Of equal importance, although less emphasized in practice, is the subject of project termination, particularly in the case of unsuccessful or marginal projects. Normally, a company or a laboratory will have requests for a higher number of projects than can be effectively implemented.
Project selection is usually done once a year, by listing all ongoing projects and the proposals for new projects, evaluating and comparing all these projects according to quantitative and qualitative criteria, and prioritizing the projects in "totem pole" order. The funds requested by all the projects are compared with the laboratory budget for the following year and the project list is cut off at the budgeted amount.
Projects above the line are funded, those below the line delayed to the following year or tabled indefinitely. The value is the payoff anticipated—but discounted by probabilities. These are the probability of technical success, the probability of commercial success, and the probability of financial success.
Consequently, project evaluation must be performed along two separate dimensions: technical evaluation, to establish the probability of technical success; and business evaluation, to establish the payoff and the probabilities of commercial and financial success. Once the expected value of a project has been determined it can be compared with the projected cost of the technical effort.
Given a company's usual rate of return on investment, the cost may not be worth the expected value given the risks. Needless to say, such statistical approaches to evaluation are not silver bullets but as good as the guesses that go into the formula.
Businesses use such evaluations, however, when many projects compete for money and some kind of disciplined approach is needed to make choices. Termination of projects is a difficult subject because of the political repercussions on the laboratory. Theoretically, a project should be discontinued for one of the following three reasons:. Due to organizational inertia, and the fear of antagonizing senior researchers or executives with pet projects, there is often the tendency to let a project continue, hoping for a miraculous breakthrough that seldom happens.
In theory, an optimal number of projects should be initiated and this number should be gradually reduced over time to make room for more deserving projects. Also, the monthly cost of a project is much lower in the early stages than in the later stages, when more personnel and equipment have been committed.
Thus, from a financial risk management viewpoint, it is better to waste money on several promising young projects than on a few maturing "dogs" with low payoff and high expense. In practice, in many laboratories it is difficult to start a new project because all the resources have already been committed and just as difficult to terminate a project, for the reasons given above. The tax credit was renewed in and lasted through , but the tax bill signed in May of left the provision out. This outcome no doubt pleased those who thought that government subsidies of corporate development were out of place—and energized those who saw the credit as nationally important to attempt to have the credit reinstated.
Research and development in public the public domain as well as in the media suggests big business, huge labs, vast testing fields, wind tunnels, and crash dummies flailing around as autos are crashed into walls.
To be sure, a vast amount of the money expended on formal research is expended by large corporations—often on relatively trivial improvements of products already doing quite a good job—and by government on weapons systems and space exploration.
The glory and the power thus displayed before our eyes on television fail to remind us that the crucial research and development on which much else is based has been—and continues to be—the work of small entrepreneurs. The explosive development of the oil industry was triggered by the invention of an effective kerosene lamp by Michael Dietz in Dietz ran a small lamp production business. What is Research and Development?
Basic or Applied Research is usually basic or applied. Join , entrepreneurs who already have a head start. Email address Get updates. Thanks for subscribing. Buyer Persona Focus Group Corporation. Merchandising Liquidation Overhead Costs. Email address Get updates No charge.
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