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

Author

Listed:
  • A. Messica

    (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)

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.

Suggested Citation

  • A. Messica & A. Mehrez, 2002. "Time-to-market, window of opportunity, and salvageability of a new product development," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(6), pages 371-378.
    • Handle: RePEc:wly:mgtdec:v:23:y:2002:i:6:p:371-378
    DOI: 10.1002/mde.1074
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    References listed on IDEAS

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    1. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August.
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    Cited by:

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