cost-benefit analysis for r&d program evaluation 2008. 11 jiyoung park [email protected]
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Cost-Benefit Analysis Cost-Benefit Analysis for R&D Program Evaluationfor R&D Program Evaluation
Cost-Benefit Analysis Cost-Benefit Analysis for R&D Program Evaluationfor R&D Program Evaluation
2008. 112008. 11Jiyoung ParkJiyoung Park
[email protected]@kistep.re.kr
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ContentsContents
Feasibility Analysis on R&D Programs
Discussions
Practices
Economic Analysis
Feasibility Analysis on R&D Feasibility Analysis on R&D
ProgramsProgramsFeasibility Analysis on R&D Feasibility Analysis on R&D
ProgramsPrograms
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Purpose
Substantiate the feasibility of large-scale public
investment R&D programs
Enhance fiscal efficiency and productivity
Subjects
Newly proposed programs of budget plans over $50 M
Programs with concrete plans on technology
development
Feasibility Analysis system has been legislated by
the end of 2006.
Feasibility Analysis on R&DFeasibility Analysis on R&D
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ProcessProcess
DemandDemand
GoalsGoals
ContentsContents
Resources PlanResources Plan
Expected EffectsExpected Effects
AlternativesAlternatives
General General CriteriaCriteria
UncertaintiesUncertaintiesOverallOverall
AssessmentAssessment
SuccessSuccess
TimingTiming
BenefitsBenefits
Do ?Do ?
Do not ?Do not ?
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ComponentsComponents
Technical Analysis Overlapping of existing programs, Research
development plan, Potential to technical success, etc.
- Systematic model approach
- Output analysis (Patent, License, Publication and citation)
- Surveys
Policy Analysis Relevance to national strategic plan, National priority,
Contingency plans for risks, etc.
- National policy and priorities
- Relevant issues and alternative plans
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Economic/Impact Analysis
Economic benefit, Economic spill-over, Social spill-over,
Scientific/Technical spill-over, etc.
- Input-Output Analysis, Patent Analysis etc.
- Cost-Effective Analysis, Cost-Benefit Analysis
- Surveys
Overall Assessment based on Technical/Policy/Impact
Analysis (Analytical Hierarchy Process)
Determine relevant importance of each criteria
Maintain balance between qualitative & quantitative
analysis
ComponentsComponents
Economic AnalysisEconomic AnalysisEconomic AnalysisEconomic Analysis
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Cost & Benefit AnalysisCost & Benefit Analysis
Economic metrics for Cost/Benefit NPV (Net Present Value) = Amount willing to pay now for the future benefit
IRR (Internal Rate of Return) = Rate of return if NPV is zero
C/B Ratio = Ratio of discounted cash flows
Types of benefit Direct/Indirect, Tangible/Intangible, Economic/Non-economic…
First step is to be aware of the characteristics of R&D Very high uncertainty, very high payoffs : internet, Life science, Solar energy …
Seed corn for the future, especially the early stage R&D
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Programs Benefits Examples
Basic Research
․Scientists training․Patents on fundamental technology․Prior occupation of high-tech R&D․(Economic benefit)
•Infrastructure building for Academic Research•Creative Research Programs
R&D for Public Health & Welfare
․Improvement of quality of life․Reduction of social cost․Reduction of environmental pollution․Energy and resources security․(Economic benefit)
•Alternative energy development•Technology development for Public health
Industrial Technology
Development
․Improvement of industrial competitiveness․Potential to commercialization․Potential to job creation․Economic benefit
•Development of component materials•Frontier R&D program
Types of BenefitsTypes of Benefits
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Applications to R&D Applications to R&D ProgramsPrograms
Industrial R&D Need to prove expected benefit exceeds projected cost
B/C result for major decision criteria
R&D for Public Welfare Combined tangible & intangible benefits
B/C result for provide alternatives
Basic Research Do not need to calculate B/C
Sometimes proves justification of public investment
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Assessment of CostsAssessment of Costs
R&D activities for providing infrastructure Research centers, Fabrication facilities, Large R&D facilities
such as Accelerators
Cost calculation based on design, construction cost, etc.
R&D activities for producing knowledge, intellectual properties DB for categorized program cost DB
R&D stages, R&D objectives, R&D field, etc.
Provides range of investment
Indirect costs are not considered.
Sunk costs are not considered.
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Assessment of CostsAssessment of Costs
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Assessment of BenefitAssessment of Benefit
Approaches based on market size
Projected Market SizeProjected Market Size
Expected Market Expected Market ShareShare
ProfitsProfits
Contribution of R&DContribution of R&D
Market researchMarket research
Technology Technology forecastforecast
Market analysisMarket analysis
Patent analysisPatent analysis
Value-added rate Value-added rate
-Published by Bank of Korea-Published by Bank of Korea
R&D Contribution to R&D Contribution to
GDP growth by industryGDP growth by industry
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Assessment of BenefitAssessment of Benefit
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Assessment of BenefitAssessment of Benefit
Approaches based on performance data
Expected # of PatentsExpected # of Patents
Business from the Business from the patentspatents
ProfitsProfits
Contribution of R&DContribution of R&D
Performance analysis dataPerformance analysis data
of similar programs of similar programs
Follow-up monitoringFollow-up monitoring
of similar programsof similar programs
R&D Contribution to R&D Contribution to
GDP growth by industryGDP growth by industry
Value-added rate Value-added rate
-Published by Bank of Korea-Published by Bank of Korea
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Assessment of BenefitAssessment of Benefit
Approaches based on synergies among investments
Expected increased # Expected increased # of papersof papers
Spin-offs by unit Spin-offs by unit inputinput
Benefits from R&DBenefits from R&D
Case studies Case studies
- Integration, new facilities- Integration, new facilities
Averaged over 3 yearsAveraged over 3 years
Case studiesCase studies
- multiplier effect- multiplier effect
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Assessment of BenefitAssessment of Benefit
Approaches based on cost avoidance
Expected # of users Expected # of users
Cost avoidance Cost avoidance (in use of R&D (in use of R&D
facility)facility)
User dataUser data
- Current and future - Current and future demanddemand
Traveling cost Traveling cost
Time-savingTime-saving
PracticesPracticesPracticesPractices
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Examples – Targeting Economic Examples – Targeting Economic benefitbenefit
New drug discovery (target materials)
Scenarios B/C NPV IRR(%)
Case-A
Royalty 5% 0.31 -2,333 -0.28
Royalty 10%
0.62 -1,283 3.08
Case-B
Royalty 5% 0.62 -1,275 3.10
Royalty 10%
1.25 833 6.65
Reduced initial investment was recommended
Increased investment will be considered after 4-year program monitoring
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Examples – Combined benefitsExamples – Combined benefits
Fusion Research for environment
Rejected for R&D program targeting industrialization
Recommended small investment for early-stage fusion research
SDC 4.5% SDC 5.5% SDC 6.5%
Category-1 1.23 1.03 0.93
Category-2 0.82 0.74 0.67
Category-3 0.45 0.41 0.37
Category-4 0.18 0.16 0.14
Category-5 0.10 0.09 0.08
Total 0.70 0.64 0.58
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Examples – Intangible benefitsExamples – Intangible benefits
Basic Research for Clean Energy
Never used the numbers for decision making
Provide justification of governmental investment
SDCCase1 Case2
NPV B/C NPV B/C
3.5 -587.7 0.41 -341.0 0.66
4.5 -596.0 0.37 -383.3 0.60
5.5 -599.0 0.34 -415.3 0.54
6.5 -598.0 0.31 -438.9 0.49
7.5 -593.9 0.28 -455.6 0.45
DiscussionsDiscussionsDiscussionsDiscussions
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DiscussionsDiscussions
Heroic calculation?
Not a real data
Need guidelines of boundaries
Need more intense data on program performance
Need to know more on the mechanism of success or fail to reduce uncertainty
Need guidelines combining B/C result and cost-effectiveness to make decision
We still want to apply cost-Benefit analysis on R&D`!
[email protected]@kistep.re.kr