Formulating optimal R&D portfolios

R&D managers continue ro report their dissatisfaction with currently-availa ble R&D portfolio management models and the need for better and simpler mod eling approaches. This article presents a simple, yet theoretically rigorou s, method for designing optimal R&D portfolios, those that minimize risk fo r a given level ofrefzlm. The model requires only the assumption that the r elevant decision makers are risk-averse a commonly accepted proposition. Th e model requires as input only an estimate of the probability of success fo r each project and an estimate of the financial return in case of success a nd failure. Finally, the model can be executed using only an ordinary EXCEL spreadsheet. The straightforward approach illustrated here should add cons iderable power and rigor to the design of optimal R&D portfolios.