Epstein ISE Seminar - JOSEPH HARTMAN, Chair, ISE Department, Lehigh University

Analyzing R&D Investment Decisions with Approximate Dynamic ProgrammingABSTRACT: Research and development (R&D) projects are often defined by multi-stage
investments. For example, growth in the pharmaceutical industry is
driven by the research and development of drugs that pass through a
number of stages, from discovery to clinical testing to governmental
approval. A company must periodically consider which drugs to pursue
and fund in the R&D process. These decisions can be difficult because
resources are limited and test results are often unclear. We model the
R&D investment process with stochastic dynamic programming. As the
state space to represent a portfolio of projects is of high dimension,
the recursion can only be solved over a number of periods. Thus, we
employ approximation techniques to extend the horizon of analysis and
ensure good time zero decisions. We illustrate our approximation
scheme, computational results, and insights gained in the
decision-making process. Furthermore, we provide a procedure to
validate our solutions.This is joint work with Pinar Keles, Ph.D. candidate in Industrial and
Sytems Engineering, Lehigh University.BIOSKETCH: JOSEPH C. HARTMAN (http://www.lehigh.edu/~jch6) is an Associate Professor in the Department of
Industrial and Systems Engineering at Lehigh University, holds the
George Kledaras Endowed Chair, and serves as Department Chair. He
received his Ph.D. (1996) and M.S. (1994) in Industrial Engineering from
the Georgia Institute of Technology and B.S. in General Engineering from
the University of Illinois at Urbana-Champaign (1992). His research
interests are in economic decisions analysis and dynamic programming.
His undergraduate textbook, Engineering Economy and the Decision-Making
Process was released in the summer of 2006. He is an active member of
ASEE, IIE, and INFORMS and currently serves as Editor of The Engineering
Economist and the Senior Vice President of Publications on the IIE Board
of Trustees.

Location: Olin Hall of Engineering (OHE) - 122

Audiences: Everyone Is Invited

Contact: Elaine Chew