A Case Study from London Business School using @RISK, PrecisionTree, and RISKOptimizer
This case describes the R&D project selection and prioritisation problem at Novartis, a recurrent issue of strategic importance for the company. In the pharmaceutical industry, project portfolio decisions are crucial to the viability and success of a company, and require huge investment commitments. This case illustrates the usefulness of management science methods for this purpose. In particular, decision analysis, simulation and optimisation are used to analyse and optimise project portfolio decisions. The Palisade software @RISK, PrecisionTree, and RISKOptimizer were used by the London Business School to demonstrate some of the analytical techniques used by Novartis. This is a relevant issue in today’s pharmaceutical industry which is facing an increasingly tough environment and needs to improve the quality of its decision-making in order to maintain its profitability.
The case starts with an overview of the pharmaceutical industry and the challenges in the drug development process, including the massive required R&D investments, possibility of failure and commercial uncertainty. Subsequently, the case discusses the work performed by the project portfolio group at Novartis. In other pharma companies, this group is sometimes referred to as the “project management group” or the “decision analysis group.” They collect the project data and requirements submitted by the individual therapy areas and collate them to analyse the global company portfolio. The case reports Novartis’s decision process, focusing on the role of the Innovation Management Board (IMB), which takes the portfolio decisions at Novartis Pharma. It also presents an extensive discussion of the issues in project portfolio management.
This case study won the 2004 INFORMS Case Competition, a prestigious competition for the best case study in Operations Research/Management Science, organised by the Institute for Operations Research and Management Science.