Methods for evaluating innovation projects

Running head: Methods for Evaluating Innovation Projects

Methods for Evaluating Innovation Projects

4-2 Analysis Paper: Methods for Evaluating Innovation Projects

NAME:

Southern New Hampshire University

IT-515 Innovation in Info Technology

Introduction

The choice of adopting new technologies could be a daunting task especially when there is more than one key factor to be considered. Innovations have failed in the past due to irrational decision making. United Mobile Response Systems (UMRS), must use established research methods (strategies compared to cost of investment and time management) to determine the right solution to their technological needs. This analysis paper will analyze two primary methods of evaluation:

Qualitative Method and

Quantitative Method

Some companies use only one of these methods while others may decide to use a combination of the two methods to evaluate and choose innovative projects.

Quantitative Method

Quantitative methods of analyzing new projects usually entail converting projects into some estimate of future cash returns from a project (Schilling, 2016). Two of the most common methods for quantitative analysis are discounted cash flow methods and real options. According to Schilling (2016), discounted cash flows are quantitative methods for assessing whether the anticipated future benefits are large enough to justify expenditure, given the risks. There are two forms of discounted cash flow analysis when evaluating investment decisions. These are net present value (NPV) and internal rate of return (IRR). The net present value refers to the discounted cash inflows of a project minus the discounted cash outflows while the internal rate of return refers to the rate of return yielded by a project which is calculated as the discount rate that makes the net present value of an investment equal zero (Schilling, 2016). Considering the chosen innovation for UMRS, when analyzing the Self-Powered Wireless Communication Platform (SPWC) for its application in the mobile command center, the IRR method is not a likely effective method. The other of the two quantitative methods used for analysis is real options. A real option is a choice made available with business investment opportunities, referred to as “real” because it typically references a tangible asset instead of financial instrument. Real options are choices a company’s management makes to expand, change or curtail projects based on changing economic, technological or market conditions (Real Option, 2004). A decision to develop the Self-Powered Wireless Communication Platform at UMRS will benefit from the real option due to the fact that this becomes a tangible asset to the company.

Qualitative Method

Qualitative method of analyzing new projects often times has different areas of focus but majorly, it is focused on the quality of the innovation; in other words, preference or order of importance is giving to the quality of data being rather than the quantity or amount of data available. According to Schilling (2016), some values “would be difficult to assess via quantitative methods, but is revealed clearly by qualitative analysis”. Some companies base their decision on the consideration of the customers who are to use or benefit from the innovation. In this scenario, the direct customers of the technological innovations of UMRS’ project would be the first responders who will be utilizing the innovation.We must also consider the families who are aided by these first responders as customers. Two of the forms of qualitative analysis usable in evaluating which project should be funded are screening questions or q-sort. UMRS management team could use well-structured list of screening questions to discuss the potential costs and benefits of a project. These questions might be organized into categories such as the role of the customer, the role of the firm’s capabilities, and the project’s timing and cost (Schilling, 2016). In a scenario such as this where a more economical solution is needed and customer input is not a crucial factor, this method may not be very effective. Q-sort is a qualitative method of assessing projects whereby individuals rank each project under consideration according to a series of criteria (Schilling, 2016). If customer input is a critical factor in the decision making process, this method will be very useful.

Conclusion

I recommend that UMRS should conduct a mixture of qualitative and quantitative analysis (conjoint analysis), precisely internal rate of return, real options, and q-sort, to determine if they want to carry on with the project. The Internal rate of return will provide a comparison of the rate of return to UMRS’ desired return thereby helping them to make a decision on using the SWCP while the Real options provides project leadership feature or substantially beneficial uses of the mcc despite the cash inflow. Q-sort will tell UMRS which features are preferred in comparison to others should they consider customer input in making the decision on which innovation to use. A combination of all these methods will guarantee a smoother decision making process that helps to avoid costly or negative investment.

References:

MacMillan, I., & VanPutten, A. B. (2004, December). Making Real Options Really Work. Harvard Business Review. Retrieved from https://hbr.org/2004/12/making-real-options-really-work

Schilling, M. (2016, January). Strategic Management of Technological Innovation, 5th Edition. McGraw-Hill Learning Solutions, 01/2016. VitalBook file.

Real Option. (2004, January 20). Retrieved from https://www.investopedia.com/terms/r/realoption.asp

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