Academic journal article Journal of Financial Management & Analysis

Benefit Evaluation of Technological Improvements: Techno-Financial Cost-Benefit Assessment of a Large Research Proposal Portfolio*

Academic journal article Journal of Financial Management & Analysis

Benefit Evaluation of Technological Improvements: Techno-Financial Cost-Benefit Assessment of a Large Research Proposal Portfolio*

Article excerpt

Introduction

Most of the evaluation of technological innovation focuses on ex post evaluation. However, it is important to develop tools for ex-ante evaluation of research in order to find the optimal mix of research programs, that will result in the highest benefit to society under given cost constraints. The importance and prevalency of exante analysis of research is increasing as resources for agricultural research become increasingly scarce.1 Todd and Wolpin2 present mediods for ex-ante evaluations, and Roper et al. present methods for ex-ante evaluation of research benefits within defined geographical boundaries.3 Methods of ex-ante evaluation can be classified into four groups:4

Scoring - assigning scores by criteria that reflect the goals of the fund.3 This method suits the peer review system and does not require the amount of resources needed for more complex economic approaches.6

* Cost-Benefit analysis of research.7

* Simulation Models: to evaluate research benefits related to a specific agricultural branch."

* Mathematical Programming.9

Optimally, decisions should be maded based on ex-ante cost-benefit evaluation of each option.10 However, cost-benefit evaluation of each proposal would be too expensive and time-consuming to be practical for a portfolio that includes many, sometimes hundreds of relatively small-scale proposals. Cost-benefit evaluation of a large group of proposals as a group, with some adjustments for each proposal, is less demanding in time and resources than the tailor-made evaluation, done separately for each proposal," but cannot capture the specific benefits (or weaknesses) of the individual research proposal.

In Israel, the economic evaluation of agricultural research proposals is commonly a separate activity and is not part of the prevailing evaluation and selection process. Bland12 Hayashi13, Kristjanson et al.1 and others point out the importance of integrating the economic analysis into a multi-criteria assessment. Alston et al.14 present a model of the determinants of rates of return to agricultural R&D. Panned15 stressed that involving the research scientists in the benefit evaluation process is very important in making productive and successful evaluations. Our experience has shown that unless the "benefit evaluation" is integrated with the prevailing evaluation and selection process, preferably with the cooperation of the researchers themselves, it will not become common practice. This paper suggests that the problems of performing a large number of cost-benefit analyses and integrating the results into a multi-criteria decision process can be overcome with the aid of a practical approach to benefit evaluation, using a simulation model of the production system and economics of an agricultural branch.

Prelude

The Israel Ministry of Agriculture research fund receives hundreds of research proposals every year. Many of these research proposals are potentially profitable, but only a few can be supported. The method described in this paper was developed at the invitation of the Israel Ministry of Agriculture and presented to the Chief Scientist of the Ministry of Agriculture. The purpose was to help its research fund in the selection of research proposals. The model aims to provide the selection committees with information about the relative economic profitability of the research proposals. Adding this information to the current criterions used in the committees' selection of proposals can help improve the quality of their decision-making. This approach is useful especially in countries that have very limited research funds, requiring them to choose among proposals that may all be economically profitable and make the most efficient allocation of their limited research funds.

The process of evaluating and selecting proposals is done in two stages by peer review committees: the first performs the evaluation, and the second makes the selection. …

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