A Probabilistic Capital Budgeting Model for New Product Development under Stage-Gate Process

Mohammad Sharifzadeh and Azi Sharif

Accounting and Finance Research, 2015, vol. 4, issue 2, 99

Abstract: Stage-gate model for new product development (NPD) and for any research and development (R&D) project consists of a series of stages and gates; each stage is a set of research activities and gates are milestones at which decisions are made based on predetermined criteria. In this paper we developed a capital budgeting model for a typical 5-stage, 5-gate process to be used for appraising commercial viability of the NPD at Stage 2 which will serve as one of the decision making criterion at Gate 3. Because in an NPD project, completion costs (capital investments), completion times, and future cash flows are uncertain, we developed the Pert-Beta probability distribution to encounter for the randomness of these variables. Furthermore, we suggested the model can be applied to real case NPD projects with the Monte Carlo Simulation approach. We then verified the workability of the model by applying it to a notional NPD project and demonstrated that all decision variables reach steady state in the Monte Carlo Simulation calculations. Â

Date: 2015
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.sciedupress.com/journal/index.php/afr/article/download/6781/4191 (application/pdf)
https://www.sciedupress.com/journal/index.php/afr/article/view/6781 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jfr:afr111:v:4:y:2015:i:2:p:99

Access Statistics for this article

More articles in Accounting and Finance Research from Sciedu Press Contact information at EDIRC.
Bibliographic data for series maintained by Sciedu Press ().