INNOVATION MANAGEMENT

TOOLS FOR PORTFOLIO

MANAGEMENT
BY PROF. JAN VAN DEN ENDE
TOOLS

• Financial valuation methods

• Roadmapping
NET PRESENT VALUE (NPV)

1. Calculate revenues and costs

2. Discount all amounts to present values
3. Multiply revenues with risk factor
4. Substract costs
5. Result: Expected commercial value (ECV)
REAL OPTIONS APPROACH

Considers a project an option to create an opportunity later

on
Takes into account:
1. You can stop after each phase, preventing costs
2. You may wait halfway during the project until the market
looks favorably
CHARGING STATIONS ELECTRIC VEHICLES
ENCO

• Construction costs: 30 million

• Risks:
– Gas stations go for competitors
– New charging techniques
– Electric car charging does not take off
NET PRESENT VALUE (NPV) CALCULATION

ECV = ( 0.2 * 100 + 0.2 * 40 + 0.6 * 0 ) – 30=

28 - 30 = -2 million
 REAL OPTIONS APPROACH
Effect 1: Taking early abandonment into account

ECV = (0.5 * (0.4 * 100 + 0.4 * 40 + 0.2 * 0 – 25 )– 5 =

0.5 * (56 - 25) – 5 = 0.5 * 31 – 5 =
15,5 – 5 = 10.5 million
REAL OPTIONS APPROACH

Effect 2: Waiting until market information is available

ECV = (0.5 * 0.8 * ( 0.5 * 100 + 0.5 * 40 – 25 ) - 5 =

0.4 * (70 - 25) – 5 = 0.4 * 45 – 5 =
18 – 5 = 13 million
REAL OPTIONS APPROACH

• ‘Fail early’ leads to higher expected value

• Values flexibility positively
 TECHNOLOGY ROADMAPPING
Business /
Market
Drivers,
Purpose
Objectives (know-why)
Delivery
Products, (know-what)
Services,
Systems,
Opportunities

Resources
Capabilities,
Technologies
(know-how)

Skills,
Partnerships, Time
Programmes (know-when)
Source: R. Phaal
ROADMAPPING

Business models B1 B2
Markets M1 M2
Q1 Q2
Products
P1 P2 P3

P4
Technologies Ta Tb
Tp Tq

R&D projects Ra Rb Rc
Rq
CONCLUSION

Portfolio management:
• Define opportunity areas and a set of projects
• Define buckets and choose projects for each bucket
Intellectual property protection is an important consideration
in portfolio management
Tools:
• Real options
• Roadmapping