How to place your bets on projects in your innovation portfolio? Innovation or capital budget portfolios can have 100s of projects. Stage Gate methods are commonly used, often supplemented by NPV or ROI estimates. However, the role of risk and probability is not always properly included, and many decisions are made one project at a time. In this talk we test the Kelly Method for allocating resources among the projects, going beyond simple go-kill-pause decisions to more precise decisions about what fraction of the budget to allocate to each project. Risk is explicitly factored into an algorithm, and the entire portfolio is numerically optimized simultaneously. The method is tested on a real portfolio, and results are presented for the allocation and improvement in IRR. In addition, the concept of “buckets” are included as optimization constraints to allow customization of the method. We’ll discuss how the Kelly Method can improve profitability, improve internal technical-commercial communication and focus, and give you greater peace of mind as you make critical innovation resourcing decisions for your company.
