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Financial Evaluation of R&D Projects

Duration: 4 Days

Overview

The course is structured around, and focused on, understanding how to select the most optimum R&D investment and to determine the value of the intellectual property generated.

Each module is underpinned by workshop-based, real-world case studies. The overall approach is geared towards facilitating and divulging information and skills relevant to the practical needs of the attendees:

  • Nature of innovation and its role in the commercial value creation process

  • Determine the criteria for developing the business case for Research & Development projects

  • Explore the application of various evaluation techniques

  • Determine relevant and non-relevant cash flow

  • Apply the techniques to different projects, investment types and industries

  • Identify the risks, challenges and issues associated with R&D investments

  • Assigning value to intellectual property

Outline

Understanding Intellectual Property

  • What is intellectual property?

  • Does the Balance Sheet reflect the reality of IP?

  • How IP contributes to the corporate value creation process

  • Importance of IP: strategic and operational

  • Protecting Innovation with Intellectual Property Rights

Challenges of monitoring and valuing IP & improvement projects

  • Acquired IP

  • Self-generated IP

  • Is value permanent and predictable?

  • Valuation standards & periods

  • Plant support vs. long term research development, specialty vs. commodity, licensing-out vs. licensing-in

  • Factors to consider when measuring non-IP based projects

  • Overview of systems (e.g., Accolade) methods and processes (e.g., StageGate)

What revenue and costs figures are relevant?

  • Direct & indirect costs; variable and fixed costs

  • Capex and Opex aspects of research projects

  • Challenges of projecting relevant future revenue and what approaches are available

  • How to determine opportunity cost factors?

  • Why is the cash flow approach important?

Cost of Capital and Funding Factors

  • Understanding the nature of WACC

  • Factors that influence WACC

  • Issues and challenges of determining WACC

  • Project funding models: Debt & Equity

Evaluation techniques

  • Discounting cash-flow principles

  • Use of EBITDA and Contribution Margin:

  • Co-relationship with potential Operating Cash

  • Importance in project evaluation

  • Multiple approaches in combination based on:

    • NPV

    • IRR

    • Payback

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