Yesterday, we discussed the need for an effective checklist in portfolio management and R&D decision making. An article from Business Week Business Investment: Too Little, Too Late? describes what the checklist should cover:
- Surfacing biases in the decision process—Reveal and remove emotional and political factors that have impact on decisions.
- Systematically cataloging assumptions—Consistently capture presumptions that underlie decisions.
- Scoping options into investments—Assess the future potential moves or investments opened by near term decisions.
- Calculating Opportunity Cost of Decisions—Consider the value of the next best alternative forgone as the result of making a decision.
These four considerations are difficult to implement in an absolute sense. For example, it is hardly ever possible to compute the opportunity cost of R&D project decisions – especially the early stage opportunities. However, that does not mean that the managers should not consider opportunity costs. A checklist is an effective solution here because it avoids the effort of actual computation while removing biases across managers that pure judgement calls might introduce. This is especially true if one makes the choices in the checklist more objective: Instead of just asking portfolio reviewers to put in a score of 1 to 5, provide a brief description for each score. We could always use the alternate discussion approach if there are significant differences across portfolio reviewers.
Please post a comment or email if you would like to see some examples…