This document proposes a new method called the Hypotheses Testing Method for evaluating startup projects and innovation. It suggests that every innovative project is underpinned by five key hypotheses: team competency, technological capability, customer value, business model, and market depth. Each hypothesis can be decomposed into assumptions relevant to different stages of the project. The method aims to identify and manage risks by testing these hypotheses iteratively at each stage, rather than focusing only on final outcomes. This provides a more comprehensive understanding of project risks and valuation than traditional discounted cash flow models. The method replaces unclear techniques and avoids heavy cash flow modeling, enabling faster risk assessment and project evaluation.
The Fuzzy front end of innovation and the business model canvas.Quantum Lab
Graduation Thesis: International business and Management: Innovation and leadership @ IBMS Top of Holland. Result:8.9.
How can Lean Startup methodology be introduced towards structuring the fuzzy front end of New Product Development in an Agile software development environment, specifically Goyello?
One of the authors’ main motivations to publish this book is the need to raise the success rate of innova
-
tion projects undertaken by enterprises and organizations
.
The emphasis placed by the authors in the fuzzy front-end of the innovation process is due to the fact
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the decisive impact that this fuzzy front-end has in the fate and results of the innovation projects
. When
investing the necessary resources, using suitable human resources and promoting essential intangible
capacities to cover the demands of this crucial period, it is possible to reduce the risk of failure of the
innovation projects
. The high rate of failure is not only related to the very nature of the innovation, which
essentially means the attempt of something that has not been previously carried out
. Many projects fail
EHFDXVH RI PLVWDNHV RU GHÀFLHQFLHV LQ WKH PDQDJHPHQW RI WKHLU IURQW HDUO\ SKDVHV DQG WKHVH IDLOLQJV
are often explained on one hand by the lack of analysis and poor planning, and on the other hand, by the
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7KH WZR VHFWLRQV RI WKLV ERRN SXUVXH WZR PDLQ REMHFWLYHV ÀUVW WR GHOLYHU WKH UHDGHU WKH FRQFHSWXDO ED
-
sis to understand the why and how of innovation management with a strict orientation towards market
.
Since an isolated application of methods and tools, without previously establishing a clear action line and
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be avoided
. Both those who assume a leadership role in decision making and those who from their most
specialized areas intervene in innovation projects, must understand innovation as a process incorporating
multiple factors, areas and dimensions, and which implies certain complexities for the management and
the employees
. In this way, it is possible to count with the necessary elements to practice analysis and
develop strategies
. Based on this approach it is possible to begin with the implementation of tools, which
allow materializing strategies
.
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section, arise from the practices of German companies and their successful innovation approaches
Project managers historically have difficulty participating during the innovation phase or Fuzzy Front-End of new products. Incomplete requirements, non-secured budgets, and unrealistic timelines are normal challenges the Project Manager must face once new product development begins. By becoming involved before the project starts, many of these issues can be minimized. In order to become engaged, the Project Manager must seek to understand the dynamics of the Fuzzy Front-End and then insert their value to the normal dominant functions of business and technology.
Second in a series of innovation webinars from Paul May & Brendan Dunphy of 'How to Farm Lightning: sustainable innovation' in partnership with Frost & Sullivan Ltd
The Fuzzy front end of innovation and the business model canvas.Quantum Lab
Graduation Thesis: International business and Management: Innovation and leadership @ IBMS Top of Holland. Result:8.9.
How can Lean Startup methodology be introduced towards structuring the fuzzy front end of New Product Development in an Agile software development environment, specifically Goyello?
One of the authors’ main motivations to publish this book is the need to raise the success rate of innova
-
tion projects undertaken by enterprises and organizations
.
The emphasis placed by the authors in the fuzzy front-end of the innovation process is due to the fact
WKDW ZLWKLQ WKHLU H[SHULHQFHV LQ WKH GLIIHUHQW ÀHOGV RI HFRQRPLF DFWLYLW\ WKH\ KDYH UHSHDWHGO\ ZLWQHVVHG
the decisive impact that this fuzzy front-end has in the fate and results of the innovation projects
. When
investing the necessary resources, using suitable human resources and promoting essential intangible
capacities to cover the demands of this crucial period, it is possible to reduce the risk of failure of the
innovation projects
. The high rate of failure is not only related to the very nature of the innovation, which
essentially means the attempt of something that has not been previously carried out
. Many projects fail
EHFDXVH RI PLVWDNHV RU GHÀFLHQFLHV LQ WKH PDQDJHPHQW RI WKHLU IURQW HDUO\ SKDVHV DQG WKHVH IDLOLQJV
are often explained on one hand by the lack of analysis and poor planning, and on the other hand, by the
LQVXIÀFLHQW XVH RI PDQDJHPHQW WRROV WKDW FDQ EULGJH NQRZOHGJH VWUDWHJ\ DQG SUDFWLFHV
7KH WZR VHFWLRQV RI WKLV ERRN SXUVXH WZR PDLQ REMHFWLYHV ÀUVW WR GHOLYHU WKH UHDGHU WKH FRQFHSWXDO ED
-
sis to understand the why and how of innovation management with a strict orientation towards market
.
Since an isolated application of methods and tools, without previously establishing a clear action line and
ZLWKRXW GHÀQLQJ SULRULWLHV JHQHUDOO\ OHDGV WR UHDOL]LQJ SRLQWOHVV HIIRUWV DQG LQFXUULQJ FRVWV ZKLFK FRXOG
be avoided
. Both those who assume a leadership role in decision making and those who from their most
specialized areas intervene in innovation projects, must understand innovation as a process incorporating
multiple factors, areas and dimensions, and which implies certain complexities for the management and
the employees
. In this way, it is possible to count with the necessary elements to practice analysis and
develop strategies
. Based on this approach it is possible to begin with the implementation of tools, which
allow materializing strategies
.
%RWK WKH FRQFHSWXDO DSSURDFK LQ WKH ÀUVW VHFWLRQ RI WKH ERRN DQG WKH VHW RI WRROV SUHVHQWHG LQ WKH VHFRQG
section, arise from the practices of German companies and their successful innovation approaches
Project managers historically have difficulty participating during the innovation phase or Fuzzy Front-End of new products. Incomplete requirements, non-secured budgets, and unrealistic timelines are normal challenges the Project Manager must face once new product development begins. By becoming involved before the project starts, many of these issues can be minimized. In order to become engaged, the Project Manager must seek to understand the dynamics of the Fuzzy Front-End and then insert their value to the normal dominant functions of business and technology.
Second in a series of innovation webinars from Paul May & Brendan Dunphy of 'How to Farm Lightning: sustainable innovation' in partnership with Frost & Sullivan Ltd
How to manage new product portfolios. Tools, criteria for selection, monitoring product development, resource allocation, innovation evaluation. Evaluating new products based on both individual merits AND macro-level company needs and priorities. Criteria for prioritizing projects, identifying stakeholders. Using computer simulations and modeling of product design alternatives to evaluate them, simulation methodology and criteria. Funneling process, new product development methodology.
Business modelling in the fuzzy front end of innovation camera ready 29june11Sander Limonard
How to inform technological decision making in long term, networked innovation? This presentation proposes a methodology that enables decision makers in networked R&D projects to select, align and enrich strategy formation, business model identification and technology design.
Evaluation method for strategic investmentsazhar901
Typically, valuation has been conducted using traditional methods such as the discounted payback method (DPM) which uses discounted cash flows to determine the time it takes to recoup the original investment; the internal rate of return (IRR) which uses the condition of when the present value is equal to zero to yield the corresponding discount factor or IRR; and the profitability index (PI), also known as the benefit-cost ratio (BCR), which determines the ratio of discounted benefit cash flows to the project‟s costs. Perhaps the most widely used traditional valuation method is NPV (NPV). The NPV method takes expected future cash flows and discounts them to the current time period. Another valuation method known as decision tree analysis (DTA) uses NPV in its valuation, but also accounts for the details of events in a valuation period such a decisions that include cash flow scenarios. The DTA method determines the expected values of outcomes based on their probability of occurrence given that certain decisions are made over time.
Strategic Foresight for Collaborative Exploration of New Business FieldsRené Rohrbeck
To ensure long-term competitiveness, companies need to develop the ability to explore, plan, and develop new business fields. A suitable approach faces multiple challenges because it needs to (1) integrate multiple perspectives, (2) ensure a high level of participation of the major stakeholders and decision-makers, (3) function despite a high level of uncertainty, and (4) take into account interdependencies between the influencing factors. In this paper, we present an integrated approach that combines multiple strategic-foresight methods in a synergetic way. It was applied in an inter-organizational business field exploration project in the telecommunications industry.
Developing innovative new products and services is expensive and time-consuming. It is also extremely risky—most studies have indicated that the vast majority of development projects fail
EFFECTS OF RISK MANAGEMENT METHODS ON PROJECT PERFORMANCE IN RWANDAN CONSTRUC...Sibo Kanyambari Aimable
Risks are very common in construction sector. Risk is the Possibility of suffering loss and the impact on the involved parties. According to APM (2006), all projects are inherently risky because they are unique, constrained, complex, based on assumptions, and performed by people. As a result, project risk management methods must be built into the management of projects and should be used throughout the project lifecycle.
Many construction projects fail because organizations assume that all the projects would succeed and they therefore do not identify, analyze, and provide mitigation or contingencies for the risk elements involved in the project.
Society desires that all projects should be performing and has become less tolerant of failure (Edwards and Bowen, 2005). Pressure is exerted on project managers to minimize the chance of project failure. This increasing pressure for performance which suggests that it is prudent for anyone involved in a project to be concerned about the associated risks and how they can be effectively managed.
Traditionally, performance of a project is analyzed on the criteria of quality, budget and time of completion. Two more criteria to determine the performance of a project were added by Kerzner (2001). Firstly, the project would effectively and efficiently manage risks and, secondly, it should be accepted by the customer.
It is known that the cause of the projects failure can be directly related to the extent of risk management methods undertaken. Besides, the level of risk management methods undertaken during project lifecycle impacts directly on the performance or otherwise of the project. Furthermore, using risk management methods effectively to manage risk should be continuously undertaken throughout the project lifecycle to enhance project performance. Risk management methods are thus an important tool to cope with such substantial risks in projects performance.
The main objective of the enquiry work that underpins this research is to investigate the effect of risk management methods on project performance. In this paper, a case study of RSSB multi-storey already executed project is considered.
How to manage new product portfolios. Tools, criteria for selection, monitoring product development, resource allocation, innovation evaluation. Evaluating new products based on both individual merits AND macro-level company needs and priorities. Criteria for prioritizing projects, identifying stakeholders. Using computer simulations and modeling of product design alternatives to evaluate them, simulation methodology and criteria. Funneling process, new product development methodology.
Business modelling in the fuzzy front end of innovation camera ready 29june11Sander Limonard
How to inform technological decision making in long term, networked innovation? This presentation proposes a methodology that enables decision makers in networked R&D projects to select, align and enrich strategy formation, business model identification and technology design.
Evaluation method for strategic investmentsazhar901
Typically, valuation has been conducted using traditional methods such as the discounted payback method (DPM) which uses discounted cash flows to determine the time it takes to recoup the original investment; the internal rate of return (IRR) which uses the condition of when the present value is equal to zero to yield the corresponding discount factor or IRR; and the profitability index (PI), also known as the benefit-cost ratio (BCR), which determines the ratio of discounted benefit cash flows to the project‟s costs. Perhaps the most widely used traditional valuation method is NPV (NPV). The NPV method takes expected future cash flows and discounts them to the current time period. Another valuation method known as decision tree analysis (DTA) uses NPV in its valuation, but also accounts for the details of events in a valuation period such a decisions that include cash flow scenarios. The DTA method determines the expected values of outcomes based on their probability of occurrence given that certain decisions are made over time.
Strategic Foresight for Collaborative Exploration of New Business FieldsRené Rohrbeck
To ensure long-term competitiveness, companies need to develop the ability to explore, plan, and develop new business fields. A suitable approach faces multiple challenges because it needs to (1) integrate multiple perspectives, (2) ensure a high level of participation of the major stakeholders and decision-makers, (3) function despite a high level of uncertainty, and (4) take into account interdependencies between the influencing factors. In this paper, we present an integrated approach that combines multiple strategic-foresight methods in a synergetic way. It was applied in an inter-organizational business field exploration project in the telecommunications industry.
Developing innovative new products and services is expensive and time-consuming. It is also extremely risky—most studies have indicated that the vast majority of development projects fail
EFFECTS OF RISK MANAGEMENT METHODS ON PROJECT PERFORMANCE IN RWANDAN CONSTRUC...Sibo Kanyambari Aimable
Risks are very common in construction sector. Risk is the Possibility of suffering loss and the impact on the involved parties. According to APM (2006), all projects are inherently risky because they are unique, constrained, complex, based on assumptions, and performed by people. As a result, project risk management methods must be built into the management of projects and should be used throughout the project lifecycle.
Many construction projects fail because organizations assume that all the projects would succeed and they therefore do not identify, analyze, and provide mitigation or contingencies for the risk elements involved in the project.
Society desires that all projects should be performing and has become less tolerant of failure (Edwards and Bowen, 2005). Pressure is exerted on project managers to minimize the chance of project failure. This increasing pressure for performance which suggests that it is prudent for anyone involved in a project to be concerned about the associated risks and how they can be effectively managed.
Traditionally, performance of a project is analyzed on the criteria of quality, budget and time of completion. Two more criteria to determine the performance of a project were added by Kerzner (2001). Firstly, the project would effectively and efficiently manage risks and, secondly, it should be accepted by the customer.
It is known that the cause of the projects failure can be directly related to the extent of risk management methods undertaken. Besides, the level of risk management methods undertaken during project lifecycle impacts directly on the performance or otherwise of the project. Furthermore, using risk management methods effectively to manage risk should be continuously undertaken throughout the project lifecycle to enhance project performance. Risk management methods are thus an important tool to cope with such substantial risks in projects performance.
The main objective of the enquiry work that underpins this research is to investigate the effect of risk management methods on project performance. In this paper, a case study of RSSB multi-storey already executed project is considered.
RISK RESPONSE STRATEGIES AND PERFORMANCE OF PROJECTS IN KIRINYAGA .docxdaniely50
RISK RESPONSE STRATEGIES AND PERFORMANCE OF PROJECTS IN KIRINYAGA COUNTY, KENYA
JAMES KADEGHE WARUI
D53/OL/CTY/26217/15
A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF MASTER OF BUSINESS ADMINISTRATION (PROJECT MANAGEMENT) OF KENYATTA UNIVERSITY Comment by user: Proposal
MAY, 2019
DECLARATION
I declare that, this proposal is my own original work and has not been presented for award of any degree in any university. No part of this proposal should be reproduced without the authority of the author and/or Kenyatta University.
Signature Date .
James Kadeghe Warui,
D53/OL/CTY/26217/15.
This research proposal has been submitted for the course examination with my approval as the University supervisor.
Signature . Date.
Dr. Lucy Ngugi,
Department of Management Science,
Kenyatta University.
DEDICATION
This work is dedicated to my family for giving me a chance to pursue an education. I also wish to dedicate this proposal to my colleagues for the encouragement and support they gave me towards the completion of this work
ACKNOWLEDGEMENT
I am thankful to God for the good health and strength He installed upon me to pursue this project. I wish to most sincerely thank my entire family for their overwhelming support throughout this process, they have always been a source of inspiration from whom I get my strength. I also appreciate my friends and colleagues who shared this journey with me and encouraged me in this journey. Comment by user: Need to acknowledge supervisor
TABLE OF CONTENTS
DECLARATIONii
DEDICATIONiii
ACKNOWLEDGEMENTiv
LIST OF TABLESvii
LIST OF FIGURESviii
OPERATIONAL DEFINITION OF TERMSix
ABBREVIATIONS AND ACRONYMSx
ABSTRACTxi
CHAPTER ONE1 put chapter and its heading on same line
INTRODUCTION1
1.1Background of the Study1
1.1.1 Project Performance2
1.1.2 Risk Response Strategies3
1.1.3 Projects in Kirinyaga County5
1.2 Statement of the Problem5
1.3 Objectives of the Study6
1.3.1 General Objective of the Study6
1.3.1 Specific Objectives of the Study6
1.4 Research Questions7
1.5 Significance of the Study7
1.6 Scope of the Study8
1.7 Limitation of the Study8
1.8 Organization of the Study9
CHAPTER TWO10 put chapter and its heading on same line
LITERATURE REVIEW10
2.1 Introduction10
2.2 Theoretical Review10
2.2.1 Enterprise Risk Management Model10
2.2.2 Expectancy Theory11
2.2.3 Network Theory12
2.3 Empirical Literature Review12
2.3.1 Risk Avoidance and Project Performance13
2.3.2 Risk Acceptance and Project Performance14
2.3.3 Risk Monitoring and Project Performance15
2.3.4 Risk Mitigation and Project Performance16
2.3.5 Risk Transfer and Project Performance17
2.4 Summary of Literature Review and Research Gaps19
2.5 Conceptual Framework23
CHAPTER THREE24 put chapter and its heading on same line
RESEARCH METHODOLOGY24
3.1 Introduction24
3.2 Research Design24
3.3 Target Population24
3.4 Data Collection Instruments25
.
Capital Rationing is the allocation of a finite quantity of a resource over different possible uses. Many firms use a form of capital rationing in formulating their new product development plans. Under capital rationing, the firm sets a fixed research and development budget (often some percentage of the previous year’s sales), and then uses a rank ordering of possible projects to determine which will be funded.
ANALYSIS OF RISK CATEGORIES AND FACTORS FOR PPP PROJECTS USING ANALYTIC HIERA...A Makwana
Success of Public Private Partnership projects is greatly influenced by proper management of the risks associated with the project. All projects which are undertaken using conventional procurement method or using a PPP approach have known risks and unknown risks. Risk identification plays an important role in development of PPP framework. The participation and investment of Private sector has been the main stay of the Government of India policy toward infrastructural growth. In this study main risk categories and factors of Public Private Partnership projects have been recognized. A total of 7 risk categories and 31 risk sub-factors for each category were identified for PPP projects safety listed under subheads. The questionnaire was prepared on the basis of literature review and was filled by 100 Stakeholders namely Consultant/Client, Project Manager/ Contractor, Engineer. Generally Analytic Hierarchy Process (AHP) is widely used as multi criteria decision making. Normally it is very hard to meet the consistence need of a comparison matrix in analytic hierarchy process. In this study AHP is used to categories the risks of PPP projects in different levels and the impact of those risks on the PPP projects are identified.
INTERNATIONAL INTERDISCIPLINARY BUSINESS-ECONOMICS ADVANCEMENT CONFERENCE, II...Dmytro Shestakov
Real Option Approach to Evaluate Strategic Flexibility for Startup Projects, IIBA 2015, 360-368
Dmytro Shestakov
This article is devoted to investigation and evaluation of a startup project strategic flexibility depending on its available development options using real option approach. This approach combines ideas of corporate finance, real options and game theory and concludes to the Risk-Neutral Probability measure and the value of a Call Option that comes from Black-Scholes-Merton model. The findings enable us to estimate the value of managerial decisions, project flexibility and help entrepreneurs and investors to select the best choice of project strategic development.
A state of having limited knowledge where it is impossible to exactly estimate a future outcome is commonly called uncertainty and is measured as a set of possible states or outcomes where probabilities are assigned to each possible state or outcome. A measured state of uncertainty is called risk that can be both negative and positive, though it tends to be the negative side that companies commonly focus on. Sometimes, a company may have uncertainty without risk, but not risk without uncertainty. Generally, uncertainty is allied to scientific term “information” and emerges mostly in its incompleteness. Meanwhile, incompleteness of information is an integral part of any business process and project whether it is launching or developing.
28 MARCH – 02 APRIL, 2015
Ft. Lauderdale, Florida, USA
Co-Editors:
Prof. Dr. Cihan Cobanoglu
Prof. Dr. Serdar Ongan
International Journal of Engineering and Science Invention (IJESI)inventionjournals
International Journal of Engineering and Science Invention (IJESI) is an international journal intended for professionals and researchers in all fields of computer science and electronics. IJESI publishes research articles and reviews within the whole field Engineering Science and Technology, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
CRITIQUE SHEETDESCRIPTIONArtist Title MediumWhat is depict.docxannettsparrow
CRITIQUE SHEET
DESCRIPTION
Artist/ Title /Medium
What is depicted in this work? What is the story? Who is it? Where is it? Describe it.
ANALYSIS
Discuss the Formal elements:
line, shape, form, value, texture, space, color.
Discuss the principles of art:
balance, emphasis, harmony, variety, gradation, movement, rhythm, proportion, space.
CRAFTSMANSHIP
HISTORICAL PRECEDENCE
Does this piece recall a previous work?
Does it reflect or reject a traditional treatment of the subject?
Does it contain elements typical of a previous artistic period/style?
INTERPRETATION
What does this work mean to the intended audience?
For whom was this work made? Why was this work made? What is the artist trying to communicate?
What signs/symbols does the artist employ to communicate this message?
What feelings or emotions does this work elicit? How is this achieved?
Running head: SCOPE, BUDGET, RISK MANAGEMENT, AND TEAM BUILDING
SCOPE, BUDGET, RISK MANAGEMENT, AND TEAM BUILDING 7
Scope, Budget, Risk Management, and Team Building: Interview
Name
University
Project Management: Healthcare Information Technology
October 13, 2016
Scope, Budget, Risk Management, and Team Building: Interview
Healthcare projects are usually difficult to complete successfully, and as a result requires intensive planning and application of the various project management processes. The purpose of this paper involves describing the interview’s context, the role of the interviewee in the organization structure as well as for the project management. More so, its purposes to synthesize various insights regarding project scope, budget analysis, risk management as well as team building of the interviewee’s organization. Comparison of the synthesized ideas in the interview and that of the project management literature. Finally, the paper will explain how the insights regarding the aspects of the project management shall impact the ability of successfully managing HIT (Healthcare Information Technology) projects.
Description of the Interview Context
The interview involved Scott Radner in the premises of the MEDITECH, in Maryland. The interview was face-to-face and was much interactive. Concerning the requirement of the project, Scott Radner became the best suitable candidate to help in getting vast information regarding the scope, risk management, budget, and team building. The reason for selecting this particular individual is because he is known to have managed several projects based on the health technology. He works in MEDITECH, as the Vice President relating to Advanced Technology. MEDITECH is the healthcare technology industry that redefined the functionality of the EHR (Electronic Health Record with a fully web-based system for mobile EHR. Scott Radner as the Vice President managed the start, completion and implementation of the project.
The unique mission of the project was enabling nurses and doctors to offer high-quality care with improved efficiency and at low.
Project Plan
Project Management
Sherrell Holifield
American Intercontinental University
Author Note
This paper was prepared for MGMT-412-1401B-01 taught by Donald Buresh
Project Plan Overview
Describe how the project will be measured for success.
Schedule- Deadlines are sometimes hard to meet according to the client. Most just want it done. Knowing the factors of the schedule and finishing the product within the estimated time frame is a plan for success.
Scope- Knowing what needs to be done and keeping that schedule in mind will be beneficial. The scope is the most important part of the project.
Budget- Sticking to the budget that was quoted prior to start of the project will prove successful for client and the business. (Pozin, 2012)
Making sure that those involved have an understanding of what the project should look like, it a plan for success. There are quite a few elements that can cause issues within any project. They include the budget, poor dynamics of the team and bureaucracy.
2
Project Risks
Possible Risk
Cost
Schedule
Financial
Contractual
Weather
Environmental
Client(s) (PM4ID, 2014)
Being able to identify the risk is a disciplined and creative process. Having brainstorming sessions that includes the team and their ideas is always helpful. The first task to is to identify the possible risk that could occur.
3
Project Risk
Probability of Risk
There is a high and low potential of risk occurring.
High impact- may require mitigation and can help narrow the focus on the critical risk.
Evaluating risk mean to focusing on those that will have the greatest possibility of occurring.
Low impact- Are those that may go unnoticed and will least likely affect the project. (PM4ID, 2014)
Not all risk are the same. Some projects are more than likely to have issues compared to others. The cost associated with these risk can vary.
4
Project Risk
Mitigation
Risk are mitigated in several ways.
Sharing
Avoidance
Reduction
Transfer
(PM4ID, 2014)
Once the risk are identified in any project a mitigation plan is required. This plan helps to reduce the results of an unplanned occurrence.
5
Project Risk
Sharing- Partnering with others that will share in the risk of activities. When the others have experience that the team on the project does not have they have an advantage.
Avoidance- This form of mitigation creates an alternate strategy which includes higher cost with the new plan.
Reduction- this decrease risk on the project with an investment of funds. (PM4ID, 2014)
Transfer-This mitigation tactic transfers the risk of the project to another group. (PM4ID, 2014)
Mitigation tactics vary. Each comes with ways to share the weight of the project and decrease the risk that will heavily impact the project. Sharing those risk with others that are more experienced can help to eliminate those risk or decrease them.
6
Project Risk
Contingency Plan
The contingency plan involves an alternate plan.
Funds are put in reserve under t.
Специфіка інноваційного проекту як передумова управління ризиками інвестиційн...Dmytro Shestakov
Метою статті є висвітлення необхідності глибинного розуміння термінології у сфері реалізації та імплементації інновації для успішного управління фінансовими ризиками та виходу на фінансові ринки, а також для забезпечення сталого інноваційного розвитку національної економіки.
На основі аналізу наукової літератури систематизовано різні підходи до визначення терміна «інноваційний проект» і зроблено висновок про існування реальної проблеми неповноти та звужування основних концепцій у сфері інновацій.
На основі наявної невизначеності реалізації інновації, а також характеристик кінцевого продукту, було надано найбільш повне та всеохоплююче визначення інноваційного проекту, а також описано ключову різницю між інноваційним проектом і звичайним, традиційним проектом для подальшого якісного управління інвестиційними та фінансовими ризиками проектів, яким притаманний значний розкид майбутніх результатів.
The Degree Of Innovation: Through Incremental To RadicalDmytro Shestakov
Innovation is one of the most important forms of expanding the economic system's capabilities and competitiveness in a modern, dynamic world. Since the beginning of the 20th century, the theory of innovation has been developing, changing, and improving significantly and many scientific papers have been created on the topic of types of innovation. However, even today, scientists are confused in basic concepts, replacing one with another and taking one for the other without proper and inﰀ depth terminology understanding. Although from innovation direction point of view, there is a clear distinction between types, some uncertainty in the levels (degrees) of innovations is present. For many years there have been many differences in the scientific literature, which significantly influenced both the inﰀdepth understanding of the innovation concept and the quality of approaches to assessing the levels of innovation. The purpose of this paper is to inﰀdepth review the literature on innovation types to identify approaches that emphasize the degree of innovation. We considered the different conclusions of the researchers step by step and argue that there is the problem of identifying one or another innovation in terms of its degree and find the disagreements in the scientific literature in basic concepts to understand high degree innovation. The most complete and extended definitions of incremental, semiﰀradical, radical, disruptive, and breakthrough innovation were proposed as well as Degree of Innovation matrix was created to clearly demonstrate the existing distinctive features of each individual degree of innovation. This paper contributes to the theoretical analysis of the impact of innovative knowledge, as well as broadens previously published scientific literature, analyzing its impact on understanding the types and degrees of innovation, as well as the relationships, characteristics and key differences between them. The results of the research is the conceptual basis supported by the scientific literature for the modern understanding of terminology in the field of innovation activities.
UNDERSTANDING INNOVATION: PROCESS, PROJECT AND PRODUCT-CENTRIC VIEWSDmytro Shestakov
Innovation is the most important source of differentiation in a dynamic environment. It helps to create a new product that better satisfy customer needs, improve the quality of existing products, improve the technological process, reduce the costs of making consumer products. While many believe so, innovation is something much more than a successful commercial use of research results. The paper is devoted to the actual questions of research of scientific approaches to the theoretical study of the basic and most important terminology in innovation sphere. Studied related literature, systematized knowledge about the approaches to the definition of innovation and described the course of thought of scientists about the innovation process and product allowed to conclude that there is a real problem of inconsistency of basic concepts in the field of innovation. Whereas, the disagreements in the scientific literature in basic concepts suggest that it is necessary to carry out an in-depth analysis of glossology and highlight key concepts. The approaches to understanding the innovation definition have been determined and found that they have only a remote resemblance and modern researchers cannot compare different terms which diverse in its source of origin. For the first time, not only concepts, but their key characteristics were considered in completely, structurally and step by step manner in a historical retrospect. The theoretical basis of each definition is evaluated, general, particular, and narrow definitions are highlighted. A detailed analysis of the main studies related to innovation evaluation is provided. Through the uncertain task implementation scope, a set of methodologies including practices, techniques, procedures as well as the output characteristics, the difference between an innovative project as a key part of creating innovation and ordinary project is clearly defined and highlighted. This paper is intended to offer an analysis of the concept of innovation and to shed light on understanding and defining innovation process, product, and project as the basic concepts in the field of innovation activity. Based on the analysis, this paper proposed alternative, more reasonable definitions of these terms both from a scientific and practical point of view.
Strategy of Innovations Development in Ukraine Part I. Introduction. Dmytro S...Dmytro Shestakov
80% of developments in the USSR defense industry were carried out in Ukraine. Thanks to sucha big school of scientists and developers, Ukraine remains among the world leaders in the field of development and production of military and dual-use products.
Today the state practically does not finance the new developments in this area, since the bulk of financing is spent on maintaining the combat capability of existing weapons and equipment of the Ukrainian Armed Forces. Therefore this traditional state monopoly was handed over to private investors, opening doors for local and foreign businesses to step into this typically closed, highly marginal market.
Moreover, there has never existed a mechanism in Ukraine that in a short time would allow developing an innovative idea into the prototype, and then — launching a serial production and its passing to the army.
The most appropriate alternative under such conditions is to attract funds from Ukrainian and foreign investors for development and production of promising defense products.
But it needs to be implemented within a transparent mechanism that has proved its effectiveness in the global best practices.
Today such a mechanism is open platforms — project offices which ensure the development and production of innovative products for specific market objectives and standards: DARPA in theUSA, MAFAT and the Office of the chief scientist in Israel, DRDC in Canada, DSTO in Australia.
Considering the experience of developing innovations by Ukrainian specialists commissioned by foreign customers, Ukrainian technologies compare favorably in creativity and cost-effectiveness among foreign analogues and are competitive in international markets.
Dmytro Shestakov, Oleksiy Poliarush, 2017
Стратегія Розвитку Інновацій в Україні. Частина Перша. Вступ. Дмитро Шестаков...Dmytro Shestakov
80% розробок у оборонній промисловості СРСР здійснювались в Україні. Завдяки грунтовній школі вчених, Україна залишається серед світових лідерів у галузі розробки та виробництва військової продукції та продукції подвійного призначення.
На сьогоднішній день держава практично не фінансує нові перспективні розробки в цій галузі, оскільки основна частина фінансування витрачається на підтримку боєздатності існуючих озброєнь та техніки Збройних Сил України.
Тому ця традиційна державна монополія фактично передана приватним інвесторам, відкриваючи двері для місцевого та іноземного бізнесу до цього закритого та високо прибукового ринку.
Більше того, в Україні ніколи не існувало механізму, який за короткий час дозволив би втілити інноваційну ідею у прототип, а потім — запустити серійне виробництво та передати його армії.
Найбільш вірогідною альтернативою в таких умовах є залучення коштів від українських та іноземних інвесторів для створення та виробництва перспективних оборонних разробок.
Однак, така модель повинна бути реалізована у рамках прозорого механізму, який довів свою ефективність у найкращих світових практиках.
Сьогодні таким механізмом є відкриті платформи — проектні офіси, які забезпечують розробку та виробництво інноваційних продуктів для конкретних цілей і стандартів ринку: DARPA в США, MAFAT та Офiс Головного Вченого в Ізраїлі, DRDC в Канаді, DSTO в Австралії.
Враховуючи досвід розробки інновацій українськими фахівцями на замовлення іноземних
клієнтів, українські технології вигідно відрізняються креативністю та економічною ефективністю серед іноземних аналогів і є конкурентоспроможними на міжнародних ринках
Дмитро Шестаков, Олексій Поляруш, 2017 рік
GLOBAL CONFERENCE ON BUSINESS AND ECONOMICS, GLOBE 2018Dmytro Shestakov
Strategic Flexibility as a Key to Innovativeness: Theoretical Framework, Globe 2018, 120-131
Dmytro Shestakov
The article reveals the main strategic changes of the competitive environment, the necessity of flexibility in the new competitive conditions are determined. Flexibility in its various forms has
long played an important role in the organizational change and strategy literature. The theoretical approaches to the definition of the concept of "flexibility", "strategy", "strategic flexibility" are
revealed. Various kinds of flexibility of the company and levels of strategic flexibility are reviewed. With the changed dynamics in the new competitive landscape, firms face multiple discontinuities that often occur simultaneously and are not easily predicted. The article substantiates that managers and government policy makers are encountering major strategic discontinuities that are changing the nature of competition. Firms must be flexible to manage discontinuities and unpredictable change in their environments. Flexibility has been a characteristic of an organization that makes companies less vulnerable to unforeseen external changes or puts it in a better position to respond successfully to change. Strategic flexibility may increase innovation performance of a firm.
Advances In Global
Business And Economics
Proceedings of the GLOBE Conference
in Sarasota, USA, June 4-8, 2018
Editor
Dr. Cihan Cobanoglu
M3 Center
University of South Florida Sarasota-Manatee
USA
GLOBAL INTERDISCIPLINARY BUSINESS-ECONOMICS ADVANCEMENT CONFERENCE, GIBA 2014Dmytro Shestakov
Real Option Strategic Approach to Find Optimal Company’s Source, GIBA 2014, 212-215
of Financing
Dmytro Shestakov
This article is devoted to investigation and evaluation of the project expanded NPV rather than simple
or passive NPV depending on its available options of financing using real option approach. This
approach combines ideas of corporate finance, real options and game theory and concludes to the Risk-
Neutral Probability measure and the value of a Call Option that comes from Black-Scholes-Merton
model. The findings enable us to estimate the value of managerial decisions, project flexibility and help
managers to select the best choice of strategic financing and its available options and their respective
combination.
Any project whether it is launching or developing requires financing, that in most cases is covered by
own funds partially, whereas the rest of by attracted facilities. On the one hand, financing attraction
varies in different forms, e.g. loan, mezzanine, equity financing, or even concluding forward contracts.
On the other hand, the proportion of each available source is important and stays under question.
Therefore, the problem of better choice between available financing options and their respective
combination exists.
Correct decision thus is especially important as a real option implies the value that includes any direct
and indirect costs and benefits connected with using such an option, besides its direct influence on
investment attractiveness ratios and ultimate valuation of a project. Moreover, since financing attraction
requires a valid business valuation, the real option effect is an integral part of any calculations connected
with such.
MAY 15-18, 2014
Clearwater Beach, Florida, USA
Co-Editors:
Prof. Dr. Cihan Cobanoglu
Prof. Dr. Serdar Ongan
Стратегія Розвитку Інновацій в Україні. Частина Друга. План Дій (Дмитро Шеста...Dmytro Shestakov
У 2017 році Платформа Розвитку Інновацій опублікувала вступну частину Стратегії розвитку інновацій в Україні, де запропоновано чіткий план дій для активізації процесів розвитку інновацій. Загалом, вже було проведено стратегічну сесію та створено Раду розвитку інновацій в Україні та проведено настановчу сесію Ради, а також розроблено План розвитку інновацій в Україні. На сьогодні економіка України потребує переходу до наступних етапів, а саме: проведення аудиту чинної законодавчої бази, розробки та затвердження нової законодавчої бази та її подальшого прийняття
Strategy of Innovations Development in Ukraine Part II. Action Plan (Dmytro S...Dmytro Shestakov
In 2017, the Innovations Development Platform published the introduction of the Strategy of Innovations Development in Ukraine offering a clear plan to activate innovation development processes [7]. In fact, the strategy meeting was held and the Innovation Development Board has been formed in Ukraine. Besides, the Board has held the advisory meeting, and the Plan of Innovations Development in Ukraine has been elaborated. Presently, the Ukrainian economy requires progressing to further stages, i.e. auditing of the current regulatory environment, development and approving of the new legislative framework and further adoption of the new laws.
how to sell pi coins at high rate quickly.DOT TECH
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@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
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debuts.
I'll provide you the Telegram username
@Pi_vendor_247
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
where can I find a legit pi merchant onlineDOT TECH
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I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
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Here the telegram contact of my personal vendor.
@Pi_vendor_247
#pi network #pi coins #legit #passive income
#US
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
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A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
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Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
The Hypotheses Testing Method for Evaluation of Startup Projects
1. Journal of Economics and Management Sciences; Vol. 4, No. 4; 2021
ISSN 2576-3008 E-ISSN 2576-3016
https://doi.org/10.30560/jems.v4n4p47
47 Published by IDEAS SPREAD
The Hypotheses Testing Method for Evaluation of Startup Projects
Dmytro Shestakov1
1
Finance Department, Kyiv-Mohyla Business School, National University of Kyiv-Mohyla Academy, Ukraine
Correspondence: Dmytro Shestakov, PhD, Kyiv/01033, Ukraine. Tel: 380-664-796-922. E-mail: ds thinkera.pro
Received: October 4, 2021; Accepted: December 4, 2021; Published: December 6, 2021
The research is financed by Thinkera Ventures.
Abstract
This paper suggests new perspective to evaluating innovation projects and understanding the nature of startup risks.
Author consider five principal hypotheses that underlie every innovative project that comprise a bunch of
respective assumptions to manage startup risks in a proactive manner. Suggested approach spots the light on a
project’s uncertainties and risks, embedded investment and managerial options, and enables more comprehensive
and accurate evaluation of innovation. The Hypotheses Testing Method enables to estimate risks and attractiveness
of a startup project in a clear and fast manner. It replaces unclear traditional techniques like NPV and DCF,
avoiding heavy cash flow modelling.
Keywords: innovation management, startup, risk management, startup valuation
1. Introduction
Solving particular problems and challenges, often even unarticulated, innovation bring to their customers certain
values (Gans, 2016; Goffin & Mitchell, 2017; Chesbrough, Lettl & Ritter, 2018; Rong & Xiao, 2016; Cesá
rio &
Fernandes, 2019). No matter what they are, a brand new or slightly bigger than existed before, these values always
exist in the form of new products (Shestakov, 2018; Shestakov & Poliarush, 2019; Zhou & Li, 2012; Nagji & Tuff,
2012; Spanjol, 2012; Marion & Fixson, 2020). Today, there is a number of approaches to estimate such a value
such as discounted cash flow, venture capital method, real options approach, comparison method, competitive
losses, matching method, etc. (Damodaran, 2002; Kodukula & Papudesu, 2006; Smit & Trigeorgis, 2004; Cassia,
2007; Que & Zhang, 2020; Casadesus‐Masanell & Zhu, 2013; Drucker, 2013). However, while researchers
compare these and other evaluation techniques in terms of their accuracy, dispersion of possible results, ability to
describe uncertainty whatever (Damodaran, 2002; Cassia, 2007), specifics of evaluating an innovation project and
its product remains blurred. In other words, there is an explicit shift of focus on the result of an innovation project,
but not on the process of its creation and development.
Meanwhile, evaluating a project value mostly relying on late stages where the product already exists, means that
risks associated with earlier stages to be absent or simply ignored. Conventionally, this issue is solved by using a
discount rate that is supposed to reflect the risks of the whole project aggregated in one figure (Correia, 2007;
Chambers & Echenique, 2018; Ohlson, 2003; Drucker, 2013), which often goes in with decision tree and scenario
analyses (Smit & Trigeorgis, 2004; Brandã
o & Dyer, 2005; Sick & Gamba, 2005). Although, still focusing
primarily on the final results of the project, investors remain incapable of understanding the nature of pertaining
project risks and so have less managerial capabilities to manage them.
In the meanwhile, being a set of hypotheses (Hurst, 1982; Melkas & Harmaakorpi, 2011; Kerzner, 2019), an
innovation project can be further decomposed into a number of assumptions (Sandströ
m, 2014; Tsang, 2006;
Berglund & Sandströ
m, 2013) related to a particular stage (e.g. prototyping, MVP, basic and full version
development, market entry market penetration; (Furr & Dyer, 2014; Tohidi, 2012; Taylor & Levitt, 2007) and
therefore can be tested to dispel uncertainty and to determine the degree of inherent risk in course of its evolution
(McGrath, 2010). Therefore, an innovation project evaluation should account all stages of creating an innovation
product through the prism of the underlying assumptions, in order to understand the nature of its risks and to
estimate its value properly considering the variety of available managerial options.
The closest methodological approach being used nowadays to account uncertainties and risks of an innovation
project throughout its lifetime is Stage Gate model (Ettlie & Elsenbach, 2006; Cooper, 2010; Cooper, 2011; Cooper,
2014; Cooper, 2016; Cooper & Sommer, 2016) that focuses on the innovation process in the whole and work it
2. jems.ideasspread.org Journal of Economics and Management Sciences Vol. 4, No. 4; 2021
48 Published by IDEAS SPREAD
out from the perspective of six stages. Whereas, assuming each stage to be designed to collect specific information
in order to dispel uncertainty and risks, Stage Gate model heavily relies on a waterfall logic that eliminates
managing risks in a proactive manner via agile methodologies. Without suggesting any particular set of hypotheses
basically intrinsic to a project, the model excludes the possibility to test them from the very beginning, even though
they relate to later stages. Moreover, the stages used in Stage Gate approach are quite general, which doesn’t
anticipate a delivery logic of a project, which makes its evaluation more complicated. On top of all of that, even
though Stage Gate model is the closest existing methodology to cover uncertainties and risks of an innovation
project, it also doesn’t enable to assess its risks intrinsic to each stage and evaluate its value.
This paper proposes to look at innovation from a conceptual point of view concentrating on primary stages of their
creation and development towards product implementation and marketing using incremental delivery perspective.
Shifting the focus from end results to the complex delivery process, the authors propose a new approach to
understanding innovation projects and their risks in a wider perspective than it is used to being considered.
Proposing the Hypotheses Testing Method, this study suggests a set of hypotheses that cover any innovation project
and all aspects of creating new products. The authors assume that in its fullest configuration an innovation project
always consists of the five high-level hypotheses that can be further decomposed into smaller assumptions. These
are a team competency, technological capability, customer value, business model, and market depth hypotheses
which have convexities and overlap during the project progress depending on the degree of innovativeness, and so
enable managing risks in a proactive manner testing them from the very beginning of a project’s creation.
Understanding decomposition of each hypothesis, reveals a more detailed picture of a project’s uncertainties and
risks, variety of available investment and managerial options, and enables more comprehensive and accurate
evaluation of innovation. The Hypotheses Testing Method is practically applicable to any project, which makes it
a conceptual basis for creating and development of innovation by perceiving their risks in a much clearer manner
and enabling assessment of their subtle value.
2. Method
At all times, the engine of progress and development was the invention of something new, which did not exist
before. However, it is important to understand that all innovations created are designed to meet existing (and non-
existent) human needs. In fact, each innovation brings its own unique value to the customers in terms of solving
specific problems. Different approaches to assessing the future development cost have appeared with the general
availability of investments in the development of innovations. In order to be able to invest in the development of
innovation (creation of new products), it is necessary to assess this opportunity. The existing assessment models
are reduced to a rather narrow emphasis - the finished product, that is, the scientific literature shifts the emphasis
on assessing the product, that is, the result of an innovation, omitting the entire life cycle of creating an innovation
with all the inherent risks and uncertainties.
When researching an innovation project as a form of innovation activities (Chesbrough, Lettl & Ritter, 2018) for
the development and implementation of innovations, researchers often deviate from the specific distinctive features
of the innovation project that is a complex system of interdependent and interconnected resources, deadlines and
implementers of activities aimed at achieving specific goals (objectives) for the priority areas of science and
technology (Frank, 2016; Hartwig & Mathews, 2020).
It is careless to assess the future cash flows of an innovative project using classical financial methods, because
omitting the entire period of innovation development and evaluating only the product sales stage (scaling), standard
Net Present Value (NPV) significantly reduces the project investment attractiveness and embedded flexibility to
minimize sunk costs and maximize upsides, and is not an appropriate method of evaluating projects that are subject
to significant uncertainty and risks.
Yes, this method considers a certain risk, but it is stable throughout the entire project and is enclosed in a discount
rate, which does not reflect the reality of all stages of an innovative project. Without dividing the project into risks
of different nature, the assessment will be linear and may give significant deviations from the output results. Even
more advanced methods like Decision Tree Analysis and Scenario analysis include a constant discount rate. Why
is it important? Due to its limitations, the discount rate cannot include the risks of a complete abandon of the
project at the early stages, that is, a working prototype and Minimum Viable Product (MVP). This leads to the fact
that the estimated income at the last project stages will be equal to 0 (after all, the product has not been launched,
which means there is nothing to sell), and the losses will be equal to the amount of funds spent on the project. In
fact, the NPV model based on the discount rate cannot include risks in the early stages of the project. Understanding
the nature of the risks of an innovative project will allow to shift the emphasis in the assessment of innovation at
all its stages, from the idea to scaling the finished product, thereby identifying and highlighting possible clusters
3. jems.ideasspread.org Journal of Economics and Management Sciences Vol. 4, No. 4; 2021
49 Published by IDEAS SPREAD
of risks at the beginning of an innovative project. Focusing on all the risks of an innovative project regardless of
its stage, separating certain risks depending on their impact on the outcome of the stage and the project as a whole
through testing the relevant hypotheses, will allow investors to understand the nature of pertaining project risks
and thus ensure the managerial flexibility in innovation project risk management.
A characteristic feature of projects whose goal is to create innovation is the dependence of uncertainty and, as a
consequence of risks at the initial stages of creating an innovation, on the degree of innovation project (Bowers &
Khorakian, 2014; Keller, 2017; Chappin et al., 2019; Kock & Gemü
nden, 2020; Mathews & Russell, 2020; Young,
2020).
Strategic decisions within the innovation project are made in the face of uncertainty, which is an integral
characteristic of innovation (Wang, 2017; Shestakov & Poliarush, 2019; Loch, 2007). Analyzing uncertainty, it
should be noted that it relates to innovations directly through the process of their creation within the project, since
it is usually not obvious what kind of methodologies, techniques and tools should be used to create the innovation;
and that the result of the innovation project is unknown and may deviate significantly from the expected one (Nagji
& Tuff, 2012; Shestakov, 2018).
The ‘uncertainty factor’ of an innovation project generates a certain range of hypotheses that underlie the project's
value and return on investment. Upon calculating the cash flows after the implementation of the project as well as
upon applying the appropriate discount rate (Latimore, 2002; Zizlavsky, 2014), investors calculate the net present
value (NPV) of the investment, which enables making the appropriate decision to participate in the project or not
(Ohlson, 2003; Smit & Trigeorgis, 2017). However, in case of innovation projects, the application of the classical
method of cash flows estimation leads to the multiplication of uncertainty, which is the way of adding new
assumptions to a set of other uncertainties. It is so due to the fact, that the cash flow assumption is derived from
the successful implementation of the project at such stages as idea development, prototyping, minimum viable
product (MVP) and basic version development, business model testing and market entry, only after that the project
moves to the stage of scaling (testing the market depth), at which it begins to generate cash flows. That is, to
determine the degree of inherent risk, it is necessary to separate all types of risks between the stages of the project
and evaluate them separately (both for the early stages and for the later ones).
Stage Gate model (SGM) as the closest existing methodology to cover uncertainties and risks is a project
management methodology (Cooper, 2016; Cooper & Sommer, 2016). The Stage-Gate process is based on the
belief that product innovation begins with ideas and ends once a product is successfully launched into the market.
The first 2 stages of an innovative project under SGM (‘Scope’ and ‘Design’) affect market research and detailed
investigation involving primary research and involve voice of customer approach in a slightly narrow form, which
means that there is no progress in reducing the level of uncertainty in the context of the customer value – it is still
the ‘black box’. The third stage – ‘Develop’ – combines all development, it is, in fact, an innovative project from
the beginning of the prototype development to the creation of a finished fully functional product. Confirmation of
consumer value occurs only at the 4th stage of this method (‘Scale Up’). However, in fact, all capital at risk is
concentrated in stage 3 under the SGM, which makes it possible to lose all funds for the project after the hypothesis
of customer value is not confirmed. The last stage under SGM i.e. ‘Launch’ assumes the beginning of full-scale
operations or production, marketing and sales (commercialization phase), which is really the final stage of any
innovation project.
After completion of each stage the gate follows, where the project leader or manager decides to start the next stage
or abandon the project (Go/Kill decision). However, it is worth considering that the risks of unconfirming the
hypotheses, which are included in stages 4 and 5, must be analyzed not in fact, but at the initial stages of the project.
This will minimize the losses of the investor and competently bring the project to completion, if the hypotheses
regarding the team competence, technological capability, customer value, business model and market depth are
confirmed. SGM does not fully reveal the depth of the risks of creating an innovation but focusing on the process
of creating innovation makes this model the closest to the approach proposed in this work.
In case of project management, the innovativeness of SGM is that it adds more flexibility to classical waterfall
logic due to the possibility of adding cyclicality at the stages of the project. It's more about project management,
not about innovation project evaluation. In case of risk management, SGM not aimed at reducing the level of
uncertainty for competent project risk management and does not provide answers for a more substantive
understanding of the risks of an innovation project.
We use proactive agile instead of waterfall logic (which reflects the SGM logic) to show the impact of certain risks
on the result of each stage of the project in interactive and iterative logic. Using this approach, it is possible to
manage risks by analyzing in detail all the convexities for each hypothesis. And this, in turn, enables the investor
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to overestimate the probability of a negative outcome for each type of risk, thereby more clearly managing the
uncertainties of creating an innovation. Understanding the risks of an innovation project, from the very beginning
of an innovation project there is an opportunity to work them out at each stage by iterations, which is a
methodologically clear systematization of the risk management.
When the process of measuring is done correctly, it will be clear that a company is either moving the drivers of
the business model or not. If not, it is a sign to pivot or make a structural course correction to test a new fundamental
hypothesis about the product, strategy and engine of growth.
However, it is worth noting one significant distinguishing characteristic in the approach proposed in this article
and the lean methodology. Lean is a methodology for quickly going through the early project stages, namely
creating a working prototype and MVP. This technique can really give an understanding of the possibility of
implementing an innovative idea, but it does not give answers to the possibility of product commercializing. In
other words, lean touches on the technical side of the innovation project and bypasses the business side. This is
the key difference - after all, a technically working version of the product, without promotion, commercial
component and market conquest, will not have exponential growth. In fact, the lean approach does not come close
to understanding the business risks of the project. The approach proposed in this work corrects this bulge,
completely covering all the main risks of going through all stages of an innovative project, both technical and
business.
Instead of quantifying the depth of the innovative product market and building a detailed financial cash flow model,
we emphasize to shift the focus to qualitative analysis of key assumptions at each project stage i.e. idea - prototype
- MVP - market entry – product scaling and analyze how they can be checked as early as possible. Based on lean
methodologies to innovation process and considering all the possibilities and sides of the SGM approach, this
paper proposes an independent approach. We will outline the main hypotheses on the way of innovation project
implementation and innovation creation.
Hypothesis 1: Team Competence (H1). The project team is a group of responsible people who form the basis for
further innovation development activities, directly participate in innovation processes, and perform tasks for the
creation, implementation, and realization of innovation products. The technical part of the team should be able to
create a prototype, MVP and a basic version of the innovation product for further implementation. The business
part of the team (entrepreneurship, management, marketing, business development, sales) should be able to
formulate the concept of the product, to manage effectively its development, to create and implement the strategy
of sales and scaling of the product not only in regard to customers but also non-customers, i.e. potential customers
of the given product, who for some reason do not use available alternatives.
The goals and specific roles of the innovation team depend on the type, size and scope of the project as well as
activity of the company. In order to innovate, companies need a driving force from within, which is an experienced
team that thinks through innovation categories, implements the right technologies and best practices for innovation
processes. ‘In the R&D context, a critical set of roles are around leading teams to promote good team spirit, trust
and support, and to build group dynamics and processes that encourage necessary teamwork to turn creative ideas
into innovation products and services’ (Paulsen, 2009).
The team competence hypothesis is present at every stage of innovation creation: starting with the idea till the
scaling of the product created. This means that the team competence generates end-to-end risks throughout the life
cycle of the innovation project. Due to the different orientation of the technical and business parts of the team as
well as diverse activities throughout the implementation of the innovation, the risk impact at different stages of
the innovation project is different. At the prototype, MVP, and basic version development stages, the technical
team competence hypothesis (H1.2) has a greater impact than the business team competence hypothesis (H1.1),
since the main tasks at these stages are creating the prototype, MVP, and basic version respectively and require
technical expertise. The business-focused team of a project usually begins to dominate after the business model
hypothesis (H4) testing during a project basic version stage (see fig. 1), while the technical team developed a
product at the previous stages continues focusing mainly on supporting and refining the product.
Hypothesis 2: Technological Capability (H2). Innovation is created in a certain time period, where appropriate
technological solutions and theories dominate and are available for use. A technology maturity can significantly
affect the results of the innovation project and product implementation. The technological capability required to
create and manage technical changes includes skills, knowledge and experience that often (but not always) differ
significantly from those required to operate existing technical systems (Bell & Pavitt, 1995). ‘The technology
development capability allows the firm to choose and to use technology with strategic purposes, to create new
methods, process and techniques, and mostly, to offer new [innovation] products.’ (Zawislak, 2012).
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The technological capability hypothesis also involves assessment of the technology’s complexity, its practical
applicability, the development level of supporting technologies that in one way or another affect the use of the
underlying technology. Also, an innovation product may consist of several technological solutions, which implies
multilayered levels of complexity, practical applicability, development of basic and supporting technologies. In
fact, diversification of risks of different technological solutions does not reduce the whole uncertainty of the
innovation project, but rather creates multilevel risks that must be identified and managed by testing the H2. One
of the main success factors for innovation products is the technical component, which leads to the high efficiency
of the innovation product (Garcia & Calantone 2002).
Incremental development of a product through prototyping and MVP, with a limited basic functional set, means
creating an initial version of the innovation in order to enable potential customers to evaluate key features of the
newly created product and to prove or deny its value (testing the customer value hypothesis (H3)), which allows
managers to make a respective pivot or exit a project and so to fix sunk costs at a minimum level. ‘MVP allows
entrepreneurs to focus more on knowing who their customers are, what habits they have, and how to attract and
retain them.’ (Trimi, 2012). Technological risk reduces as you progress through the innovation project
development stages, which means that at the prototype stage the risk is the highest, and at the market entry and
scaling stages it is the lowest.
It is obvious that technologies used for creation of a prototype, MVP and basic version of a product can be complex,
and their practical applicability and level of development can affect the technological capability to accomplish
necessary tasks and therefore to achieve the project targets.
Hypothesis 3: Customer Value (H3). ‘Customer value has been widely recognised as a key factor in organisational
management, marketing strategy and customer behaviour.’ (Sánchez-Ferná
ndez & Iniesta-Bonillo, 2009). All
processes of an innovation project are aimed at meeting existing customers’ needs and/or creating a new,
previously unknown, demand. Pinto and Mantel, based on the research of the 97 failed projects, identified a project
value and customer satisfaction as two out of three main causes of failure (Pinto & Mantel, 1990). The marketing
component reflected in the degree of customer commitment to the product is one of the basic concepts of
innovation success (Garcia & Calantone, 2002). The essence of the customer value hypothesis (H3) is to confirm
the value of the newly created product and the willingness to use it by targeted customers.
A new product is valuable if it offers a better way to solve a problem. But even if the product has some functional,
emotional or social benefits in comparison to other alternatives, a customer before acquiring the product will also
take into account its cost, time and efforts needed to use it. That is, value is not just the quality and quantity
characteristics of a product against those available on the market, it is the willingness of customer to buy this
product within the offered price model, which is reasonable to be tested before market entry and as a part of the
business model hypothesis testing.
Hypothesis 4: Business Model (H4). ‘Technology by itself has no single objective value. The economic value of
a technology remains latent until it is commercialized in some way via a business model.’ (Chesbrough, 2010).
‘The essence of a business model is in defining the manner by which the enterprise delivers value to customers,
entices customers to pay for value, and converts those payments to profit’ (Teece, 2010). Following the project
logic, the purpose of making a business model is to confirm the willingness of customers to buy a product for the
offered price model (based on a particular value chain) and using designed marketing channels. Despite the fact
of being competitive, an innovation product may not find its customers through a poorly designed business model.
The business model of the company working on the implementation of the innovation should give clear answers
to the questions: how the product is created, how it is sold and delivered, how it is supported and maintained, how
users are attracted, and how the company will earn from innovation (monetization model). In the absence of a
proper business model, technologically innovative product will hardly enter the market, not to say creating a new
one, and disruptive innovation will not ‘disrupt’ the target market.
Hypothesis 5: Market Depth (H5). An investor always looks at an innovation project in terms of its commercial
scalability. Innovations aimed at satisfying a narrow customer category generally do not have significant demand
among venture capital investors.
The uncertainty about the market depth is related not only to the unpredictable volumes of possible revenues, but
also to the sources of revenue. The market depth hypothesis is tested with regard to i) type, level, form, and degree
of innovation, the creation of which is envisaged by an innovation project, since different combinations of
innovation characteristics may imply significant differences in the breadth and depth of a target market; ii) the
value of the product being developed and the ability to meet the specific needs of customers; iii) scalability and
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access to new markets of the newly created product. Assumptions outlined at the market entry stage allow to be
reviewed and pivoted upon incoming data, and so to mitigate market risks.
Fig. 1 below illustrates the five hypotheses that need to be tested for in-depth understanding of innovation project
risks.
Figure 1. Hypotheses of an innovation project in terms of product evolution
3. Results
The 5 main hypotheses presented and described above combine most of the risks of implementing an innovation
project. It is possible to overestimate an innovation project based on a qualitative analysis, however, it is also
possible to use more visual calculations that will help not only to compare the project value estimated with the
inclusion of a hypotheses conceptual model with the project value estimated by the Discounted Cash Flow (DCF)
method, but also to expand the horizon of risks to minimize losses and focus on those project risk bulges that can
lead to the project abandon.
Further, the real options method will be used in paper as a proxy for the quantitative assessment of an innovative
project with the inclusion of 5 hypotheses at different stages of the innovation project. The calculations below
reflect the logic of the project evaluation process, if the hypothesis testing approach at each stage of innovation
creation is used.
Thoroughly analyzed theoretical basis for the ROA (Real option analysis) methodology in innovation projects
evaluation and interpreted practical significance of the results obtained, this section represents the case study with
a detailed explanation of all stages of evaluation and results on each project life cycle. By detailing and quantifying
the hypotheses suggested above, managerial flexibility over the life cycle of an innovation project will be estimated
to fully understand the competitive advantages of the valuation method used.
The Innovation Company interested in investing into a breakthrough innovation project considers the product
features, and functionality to be developed will significantly outweigh existing solutions and solve a set of specific
customer problems more efficiently and at a less cost.
According to the classic DCF approach to assessing investment attractiveness the project team proposes to invest
$500,000, namely $150,000 in the product basic version development during the 1st year, $100,000 in market
entry stage during the 2nd year, $150,000 and $100,000 in marketing during the 1st and the 2nd half of the 3rd
year respectively. The DPP (Discounted Payback Period) is 2 years, the ROI (Return on Investment) for a 3-year
period is 500 percent, and the NPV is $2,500,000. The liquidation cost of the project is equal to its basic version
development, which means the capital at risk in the case of investing in the project being $150,000, and the annual
risk-free rate is 5 percent.
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Due to customer demand uncertainty and uncertainty of the project team ability to create a product and achieve
declared characteristics the Company considers how to minimize investment risks by analyzing and exploiting
available contingencies of the project.
Assuming Prototype, MVP, and Basic Version development costs equal to $50,000 each ($150,000 in sum), adding
market entry and marketing costs, the project decision tree accounting for all possible decision options and related
costs is created for better understanding of how the ROA works in case of innovation project (see fig. 2).
Figure 2. Innovation Project Decision Tree
S0 – or base point – is the stage where the Company decides to invest in the project. If the team competence (H1)
and the technological capability (H2) hypotheses are disputed (in other words, the team is not able to create the
working prototype), the Company will suspend the implementation of the project (S0f) fixing losses in the amount
of actually invested funds, that is $50,000. If the hypotheses are confirmed, the Company will continue developing
the project (S0s) investing in the next stage.
Investing in the MVP development, if at least one of the three hypotheses (H1, H2, H3) is denied, that is, either
the team is not able to create the MVP or the product value is not confirmed by its customers, the Company will
terminate the project (S0f2
) fixing $100,000 of losses. If all three hypotheses are confirmed, the Company will
continue developing the project (S0s2
) investing in the next stage.
In case of refutation of the hypotheses H2, H3, H4 on the basic version stage, the Company will terminate the
project (S0f3
) fixing $150,000 of losses. If hypotheses are confirmed, the Company will continue investing into the
project (S0s3
) additional $100,000 to launch marketing campaign entering on the market.
Further, if both the H4 and H5 hypotheses are confirmed on the market entry stage, the Company will continue
investing (S0s4
), since uncertainty about market demand would be partially dissolved, which now allows to
estimate expected cash flows with more confidence. But if at least one of the hypotheses is denied, the Company
will suspend the project implementation (S0f4
) fixing $250,000 of losses.
Having fully confirmed the H4 and partially H5 hypotheses, it becomes reasonable to boost marketing costs in
order to keep on testing the market depth depending on three possible outcomes, which is rapid growth (S0s5
),
moderate growth (S0m5
) or weak growth (S0f5
). So the Company has a choice (i) to invest further $100,000 in the
case of rapid (S0s5
) or moderate (S0m5
) growth, or (ii) $50,000 in the case of weak growth (S0f5
).
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Assessing investment attractiveness of the project, the Company applies a multiplier to invested capital approach
for project valuation, a multiplier method, that varies depending on the final results of the H5 testing:
▪ In case of rapid exponential growth (S0s5+
) or rapid linear growth (S0s5
), the multiplier will be x40 or x20
respectively, which means the project value will be $20M or $10M.
▪ In case of moderate rapid growth (S0m5+
) or moderate linear growth (S0m5-
), the multiplier will be x10 or x5
respectively, and the project value will be $5M or $2.5M.
▪ In case of weak moderate growth (S0f5+
), the multiplier will be x2.5 with the project value of $1.125M.
Whereas, if the market depth hypothesis is eventually denied, the Company will have to terminate the project
(S0f5-
) with $450,000 of losses.
Next, based altogether on the backward induction approach, the real option method, the hypothesis testing and the
multiplier methods, it is applicable to assess the project investment attractiveness (see fig. 3).
Figure 3. Generalized block diagram for the Hypothesis Testing Method
In order to assess investment attractiveness of an innovation project taking into account its uncertainties, risks and
decision-making flexibility, this paper proposes the new approach based on the Hypothesis Testing Method and
implies three steps:
1. Build a decision tree by decomposing the project contingencies within its evolution path, minimizing
investments on earlier stages and increasing them upon successful testing of underlying hypotheses.
2. Estimate final scenarios depending on the innovative potential of a project using the multiplier method or
cash flow forecast if applicable.
3. Calculate option price at each node starting from the last stage and then move back to market entry, basic
product, MVP and prototype stages using backward induction logic and ROA.
After assessing an innovation project value, the probability of financial losses (Value-at-Risk modeling) has to be
done in order to estimate risk landscape of the project.
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The Hypothesis testing method proposed here is suitable for evaluating any innovation project, but its value
significantly increases with the increase in innovativeness degree, as the more innovative the project is (for
example disruptive or breakthrough), the more difficult it is to evaluate it with existing methods.
The option price, that reflects net project value, is calculated using the following formula (Smit & Trigeorgis,
2004):
𝐶 =
𝑝(𝑉+−𝐼)+(1−𝑝)(𝑉−−𝐼)
1+𝑟
----------------- --------------------------(1)
where 𝐶 – option price, 𝑝 – risk-neutral probability, 𝑉+
– the highest project value, I – the amount of investment
required), 𝑉−
– the lowest project value, 𝑟 – risk-free interest rate (rate of return) which is calculated based on
annual risk-free rate:
𝑟 = (1 + 𝑟𝑓)
𝑛
− 1 -------------------------------------------------------(2)
where 𝑟𝑓 – annual risk-free rate, 𝑛 – number of years.
The risk-neutral probability is calculated as follows (Smit & Trigeorgis, 2004):
𝑝 = (1 + 𝑟)𝐸(𝑉) −
𝑉−
𝑉+−𝑉− ---------------------------------------------------(3)
where 𝐸(𝑉) – expected value of the project.
𝐸(𝑉) = ∑ 𝑉𝑖
𝑖 𝑓(𝑉𝑖) -------------------------------------------------------(4)
Using the multiplier method calculate the project value on the end nodes at scaling stage. Then, calculate option
prices on each decision tree node starting from the end and then move backward to the left. In order to understand
the estimation logic, S0s5
node option price will be calculated step-by-step.
For rapid growth (S0s5
) the total investments (I) are $500,000, the highest project value (V+
) is $20,000,000 (S0s5+
)
and the lowest project value (V-
) is $10,000,000 (S0s5-
). The risk-free interest rate for the product scaling stage (r)
using formula (2) is 0.16:
(1 + 0.05)3
− 1 = 0.16
Substituting these values into the formula (3) and (4), the risk-neutral probability is equal to 0.74:
(1 + 0.16)𝑥($20,000,000𝑥0.5 + $10,000,000𝑥0.5) − $10,000,000
$20,000,000 − $10,000,000
= 0.74
The option price for S0s5
node using the formula (1) is calculated as follows:
𝐶 =
0.74𝑥$19,500,000 + (1 − 0.74)𝑥$9,500,000
1 + 0.16
= $14,568,081
To put it another way, $14,568,081 is the net project value in case of rapid growth of sales considering its further
inherent uncertainty and uncertainties dispelled:
▪ the team's ability to create a working prototype, MVP and basic version;
▪ the complexity of the technologies used, their practical applicability and maturity affecting the technological
ability to create the product;
▪ the unique value of the product and customers willingness to use it;
▪ the customer willingness to buy the product with the offered price model;
▪ the scale of the problem solved that ensures comprehensive interest from customers and the marketing strategy
used.
Using the same logic, the option values on all other nodes of the decision tree are calculated (see fig. 4).
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Figure 4. Innovation Project Decision Tree with option prices calculated
That is, the entry cost or net project value at its early stage (S0) with all inherent uncertainties and managerial
decision options (flexibility) related to H1-H5 hypotheses is equal to $185,031.
Furthermore, since the E(V) for calculating risk-neutral probability (3) also contains a probabilistic indicator that
directly affects the option price (net project value), it makes sense to compare the results by the ordinary and real
option decision tree.
As it is shown in fig. 5, for the ordinary decision tree, where the event probabilities are determined and the project
value is reduced to the net present value calculated using a discount factor, the expected project values are fairly
lower.
Figure 5. Ordinary Decision Tree with discounted project values
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Thus, the estimated project value under the ordinary decision tree is $61,969, which is 3 times less than the value
obtained by the real options approach ($185,031, see fig. 4), which reduces the project investment attractiveness
as well as the chances of getting financing.
Applying sensitivity analysis, the probability factor impact on the expected results from the ROA approach and
decision tree were compared. The net project value on the node S0 in fig. 4 and the net present value on the node
S0 in fig. 5 were re-estimated including possible deviation of the probability factors used to calculate the decision
tree and ROA risk-neutral probability on each node using normal distribution (mean 0.5, std. dev. 0.05).
Conducting Monte Carlo analysis, the project ROA values (fig. 6, left side) and simple decision tree values (fig.
6, right side) were calculated.
Figure 6. Distribution of the project ROA value (left) and Decision Tree value (right)
Figure 6 graphically shows the initial project value. The x-axis contains all possible values of the project value,
and the y-axis shows the corresponding probability value. In the 95 percent confidence interval, the project value
within ROA methodology will be in the range of $15,674 to $681,466, instead of $-21,326 to $298,228 with the
decision tree. Negative values are possible in ROA in contrast to financial option, since the model takes into
account the amount of possible losses at each stage.
Evaluating financial risks, the Value-at-Risk (VaR), which is a statistical measure of potential loss that could
happen, needs to be estimated. VaR for ROA is 12,6 percent that is, with 0.99 probability, the investor’s losses
will not exceed 12,6 percent of the net project value at early stage (S0). VaR for decision tree is 44,0 percent, so
the investor’s losses will not exceed 44,0 percent of the project value. Meanwhile, according to the decision tree
the project value at early stage may go below zero with the probability of 15,2 percent, while using ROA the
probability of going below zero is 1,8 percent.
Now let’s get back to standard NPV calculated for the project in the amount of $2,500,000, which implies
successful product creation and market entry, and the proof of all the underlying hypotheses. Meanwhile, NPV
approach methodologically does not have the capability to consider and respectively account all contingencies and
respective ups and downs inherent to an innovation project. Obviously, this controversy makes a comparison of
standard NPV with the net project value calculated with ROA, that in our case is $185,031, irrelevant. In order to
compare standard NPV with the option price calculated with ROA, it is necessary to look at the net project value
at the market entry stage, which is $5,651,272 (S0s4
in fig. 4) or 126.1 percent higher than the project standard
NPV calculated using the DCF approach (see fig. 7). The innovation project investment attractiveness is more than
2 times higher if it is estimated using the ROA, which significantly increases the chances of investors entering the
project and its practical realization. Another significant advantage is the fact that the ROA also evaluates each of
the innovation creation steps that cannot be done by simple NPV.
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Figure 7. ROA Decision tree versus NPV approach
Omitting the entire period of innovation development and evaluating only the product sales stage (scaling),
standard NPV significantly reduces the project investment attractiveness and embedded flexibility to minimize
sunk costs and maximize upsides, and is not an appropriate method of evaluating projects that are subject to
significant uncertainty and risks. Instead of that, the approach proposed, unlike the existing methods of evaluating
innovation opportunities, involves the project life cycle stages and underlying hypotheses.
4. Discussion
Due to inherent uncertainty and related risks of innovations, prediction of future optimal decisions looks like a
vague idea, but it is not a reason for excluding managerial flexibility from taking into consideration while assessing
innovation projects. Evaluating investment attractiveness of an innovation opportunity, its profitability,
considering inherent contingencies and minimizing financial losses, should include available managerial options
during the project’s lifetime.
Real option and decision tree analysis are useful tools for assessing strategic landscape and respective investment
decisions. ROA corrects NPV value by incorporating flexibility of managerial decision making, which allows to
reconsider uncertain situations and adopt them into simpler analytical structures. However, at the same time, ROA
is a financial innovation assessment tool, most suitable for assessing an innovative project, which has been known
for many years. Estimating the innovation project, this paper proposes a completely new approach that allows an
investor to look differently at innovation development. This article describes the mechanism for reassessing the
risks of innovation at each innovation project development stage, which allows to build risk clusters and understand
the likelihood of project implementation failure competently.
Since every innovation project goes through prototyping, MPV and basic version development, market entry, and
scaling, we propose to consider in detail uncertainties and risks inherent to these stages reflected in the five
hypotheses which are the Team competence (H1), Technological capability (H2), Customer value (H3), Business
model (H4), and Market depth (H5) hypotheses.
Evaluating project exclusively based on its cash flows, there is a bulge in understanding the real risks of its failure.
The proposed Hypothesis testing method, which is superimposed on ROA, backward induction and multiplier
method, allows to shift focus to risk assessment of innovation projects.
Other distinguishing features of the Hypothesis testing method approach are:
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1. Independence from a discount factor.
2. Using risk-neutral probability instead of subjective probabilities.
3. Hands-on applicability of ROA as it accounts to managerial flexibility during an innovation project
lifetime, unlike NPV.
4. Minimizing the impact of project duration on its value. In the DCF approach all calculations are
subject to the time factor, however, in case of innovations a project duration can differ significantly
from expected one. Estimating an innovation project using the DCF method, the output will differ
significantly, whereas within the ROA the deviation is minimized.
5. Minimizing capital-at-risk usually considered as a whole investment cost.
6. Focus on the phased success, which allows to reconsider project related risks based on the information
obtained after the uncertainties have been cleared in the previous stage.
The proposed innovation project evaluation method is a logical extension of the real option theory as a competitive
approach to the assessment of investment opportunity with a high level of uncertainty. By shifting attention from
the cash flow that will occur only after the successful product implementation (which implies the successful
completion of all stages of product development, as well as marketing and sales launching) to testing the
hypotheses at each stage of the innovation project, it is possible to explore all possible risks separately and
overestimate these risks in iterative logic for deeper understanding of the investment opportunity. This is a new
paradigm in risk assessment of innovations.
Evaluation of an innovation project due to inherent uncertainty should cover all stages of innovative product
creation, starting with an idea to scaling on the market. Each stage is fraught with uncertainty and risks that can be
outlined by testing of appropriate hypothesis. The Hypothesis testing method in the context of the evolution of an
innovation product allows to investigate project risks, isolate clusters of uncertainty and identify differentiated
risks of team, technology, customer value, business model and market depth, which in turn allows to make a more
informed investment decision by reassessing the risks and opportunities based on the hypotheses inherent with
each stage of the innovation project.
Applying the ROA to assess the innovation project investment attractiveness is a conceptually correct decision, as
it involves both the ability to assess managerial flexibility and the departure from risk aggregation in the discount
rate factor.
The substitution of classical valuation methods for innovations is a logical and necessary way, since the inclusion
of strategic flexibility and minimization of capital at risk by using the Hypothesis testing method are features that
allow investor to make more accurate management decision and avoid missing the breakthrough opportunities.
This approach changes the direction of the innovation assessment process from the financial component that is
present after sales began, to all stages of creating an innovation, starting from the idea generation, in order to
describe the main risks of the project as fully as possible. This method is flexible, which allows it to be used for
projects of different areas. It can also be expanded by adding assumptions to the underlying hypotheses or
narrowed down if one or more hypotheses have already been tested and the uncertainty about these risks is
completely dispelled.
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