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Product Development Economics Chapter 17 - Coggle Diagram
Product Development Economics
Chapter 17
The method consists of 4 steps:
Build a base-case financial model.
Perform a sensitivity analysis to understand the relationships between financial success
and the key assumptions and variables of the model.
Use the sensitivity analysis to understand project trade-offs.
Consider the influence of qualitative factors on project success.
When Should Economic Analysis Be Performed?
Go/no-go milestones
Should we try to develop a product to address this market opportunity? Should we proceed with the implementation of a selected concept? Should we launch the product we have developed? These decisions typically arise at the end of each phase of development.
Operational design and development decisions
Operational decisions involve questions such as: Should we spend $100,000 to hire an outside firm to develop this component in order to save two months of development time? Should we launch the product in four months at a unit cost of $450 or wait until six months when we can reduce the cost to $400?
Build a base-case financial model
Estimate the Timing and Magnitude of Future Cash Inflows and Outflows
Compute the Net Present Value of the Cash Flows
The Base-Case Financial Model Can Support Go/No-Go Decisions and Major Investment Decisions
Perform Sensitivity Analysis
Development Cost Example
Development Time Example
Use Sensitivity Analysis to Understand Project Trade-Offs
Six Potential Interactions
Trade-Off Rules
Consider the Influence of the Qualitative Factorson Project Success
Projects Interact with the Firm, the Market, and the Macro Environment