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Fostering Risk Taking in Research and Development: The Importance of a Project's Terminal Value
Author(s) -
Case Randolph H.,
Shane Scott
Publication year - 1998
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1998.tb00876.x
Subject(s) - project portfolio management , project risk management , portfolio , business , value (mathematics) , project team , risk management , risk management plan , project management , resource allocation , project manager , project management triangle , operations management , terminal (telecommunication) , marketing , actuarial science , risk analysis (engineering) , knowledge management , economics , computer science , it risk management , management , finance , telecommunications , machine learning
Large firms face a conflict in managing a portfolio of high‐risk projects. When an ongoing project is thought to have a low likelihood of success, project team members take risks to improve its chances of success. However, upper‐level managers who allocate resources tend to withhold resources from a project with a low likelihood of success in favor of others in the portfolio that look more promising. Because this paucity of resources influences project team members to avoid risk, the total effect of success likelihood on risk taking is conflicted. The influence on risk taking of a project's terminal value—defined as the value that remains in the firm in the event of project failure—is unequivocally positive, because both senior management resource allocation and project team risk‐taking propensity are encouraged by terminal value. Thus, firms can override the ambivalent effect of likelihood of success on project decision making by focusing attention on a project's terminal value.