Time-to-market, window of opportunity, and salvageability of a new product development

A. Messica and A. Mehrez
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A. Messica: Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, P.O. Box 653, Beer-Sheva, Israel 84105, Postal: Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, P.O. Box 653, Beer-Sheva, Israel 84105
A. Mehrez: Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, P.O. Box 653, Beer-Sheva, Israel 84105, Postal: Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, P.O. Box 653, Beer-Sheva, Israel 84105

Managerial and Decision Economics, 2002, vol. 23, issue 6, 371-378

Abstract: The time-to-market in the presence of a window of opportunity is analyzed using ;a probabilistic model, i.e. a model where the completion time of new product development is a random variable characterized by a gamma distribution. Two cases are considered: the first, a case where the discounted return-on-investment exceeds the return expected from a conservative investment-e.g. investment in bonds-termed 'the profitable case'; and the second, a case where the discounted return-on-investment just balances the cost of new product development, termed 'the salvageable case'. The model constructed is focused on the financial aspects of new product development. It allows a decision-maker to monitor, as well as terminate, a project based on its expected value (at any time prior to completion) by computing the mean time-to-market that provides profit, investment salvage, or loss. The mean time-to-market computed by the model may be compared with that estimated by the technology development team for decision-making purposes. Finally, in the presence of a window of opportunity and for the specific cases analyzed, we recommend to always keep the expenditure rate lower than the expected return rate. This will provide the decision-maker a salvageable exit opportunity if project termination is decided. Copyright © 2002 John Wiley & Sons, Ltd.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:23:y:2002:i:6:p:371-378

DOI: 10.1002/mde.1074

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