Capital Budgeting Practices for R&D: A Survey and Analysis of Business Week's R&D Scoreboard

Abstract

This paper discusses results of a survey of US. Corporations regarding the extent of the utilization of standard capital budgeting measures of investment worth to evaluate R&D projects. This study analyzes responses by three types of R&D activity: Basic, Applied and Development research. The results indicate that discounted cash flow methods are widely utilized in the evaluation of Development projects, and the analysis of Development projects is a s mphisticated as the evaluation of non-R&D projects. The uae of discounted cash flow analysis techniques for Applied projects is considerably less widespread than for Development projects. However, the utilization of Net Present Value and Internal Rate of Return increases with firm size. Basic research projects are much leas likely to be subjected t o a formal economic analysis and are generally thought of as being "strategic" investments. This research also indicates that post-audits of Applied and Development projects are based on economic measurea, whereaa Basic research projects focus on physical or operational goals. Lastly, this research indicates that most R&D projects are terminated because R&D priorities have changed rather than because they are not technically feasible.

An exploratory study into the adoption of capital budgeting techniques by agricultural co‐operatives

“…Capital budgeting has been widely utilized as a management and strategic planning tool by corporations [4][5][6][7][8][9][10]. Chandra [11] suggests that the budgeting process often has many behavioural outcomes in the organizational planning process, such as enhanced goal congruence and more universal participation.…”