Research And Development Teams May Not Be Based On Financial Calculations

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Research and development teams may or may not know the uncertainties behind or surround new technologies considering they are in the process of developing the product or service. It may try to resist attempts to quantify value; but on the other hand; the financial department would think otherwise, as it is evidence of woolly thinking. Of course, both sides are right in their own way. When a newly modern advanced product is near to completion, no company will proceed without detailed financial figures first. However, when an intriguing new idea is first generated, the decision to take it further should not and must not be based on financial calculations alone.

Once future cash flows are forecast conservatively and cautiously and an appropriate discount rate is chosen, next the present value will be calculated. Managers should acknowledge that, in valuing an innovation project, there are not estimating the value of something that exists today but making a prediction of the performance and goodness that the new product or service will generate in the future. Leading companies treat the valuation and selection of innovation projects not as a single decision but as an incentive for the prognostication process, in which the prediction of value develops and improves over time. In a bit of ways it is comparable to weather forecasting, where the best way to predict the weather in an hour 's time is to go outside and look and the best way for a few days ahead is using computer
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