Evaluating new product decision processes

The development of a new product is often a sequential-decision process with many available stages at which the product may take any one of a number of alternate courses of action. This paper identifies an efficient algorithm for solving this sequential-decision process. A computer program, involving the algorithm, has been written to solve problems containing up to one thousand stages. Input into the program includes the subjective probabilities of success for each decision branch, the cost associated with each decision stage and level, the rate for discounting all monetary values to the present plus an indicator for each decision stage and level of the desired decision criterion. The algorithm utilizes the dynamic-programming solution approach. The output of the algorithm contains the minimum, or maximum, expected discounted decision values for each stage and level of the network. The algorithm and computer program have been primarily utilized in the pharmaceutical industry. An illustrative, exemplary use of the algorithm in this industry is presented.