• Journal Article

Better decision making for evaluating new medical device projects: A real options approach

Citation

Johal, S., Oliver, P., & Williams, H. C. (2008). Better decision making for evaluating new medical device projects: A real options approach. Journal of Medical Marketing, 8(2), 101-112. DOI: 10.1057/palgrave.jmm.5050116

Abstract

This paper addresses some of the issues facing new product development in the medical device sector and reviews some of the financial decision-making methods currently used to aid in project selection. The fundamental limitations and deficiencies of these methods are discussed. An alternative, real options (RO)-based approach to project management is proposed as a much better way of managing uncertainties and understanding the relationships between the risk and the opportunities in a product development lifecycle. Although the RO technique is not especially new, its application to the medical device sector is novel. An RO valuation example, using a binomial lattice approach, is given and the implications for project selection and company strategy are discussed.