Critical Thinking –
SCMS Case 1

 

Part  1

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·     
What
are the objectives?

– The objectives are to streamline the R&D
(research and development) of pharmecutical products. That will in return
reduce costs and increase the value and sales. Also, to determine which
projects will be allocated large and small budgets.

·     
What
are the constraints?

–      
The
constraints are the risks that are involved in risky drug discovery and
development.  The longer it takes for a
drug to develop, the higher the development costs are. As well as higher return
on investments and a larger amount of generic competitors. In the
pharmaceutical industry another constraint would be competition between other
name-brand drugs.

 

What
are the risks involved?

– The
largest risk is that not all drugs produced will return a profit. A large part
of the development cost is spent on drugs that have a low chance of making it
to the market. Also, another risk could be that drugs that do make it to the
market may not make back the costs it took to produce the drug. As the case stated,
roughly only 30% of drugs that make it to the market are successful enough to
recover development cost. .

 

·     
What
are your alternatives?

– The alternatives are to obtain ideal
research and types of development strategies that are the most cost efficient,
improve sales, and reduce needless costs. Also, the company can choose to spend
money on other more profitable projects like NME or LCM projects.

·     
What
information is required for project portfolio management at XYZ and how can it
be collected?

– The information required would be the
results produced from research and development projects. Specifically the costs
of each project, the likelihood of technical project success, expected year of
drug introduction, cost it takes to introduce drug to market, return on
investment, and the amount of market risk.

 

 

 

 

Part 2

By assessing the amount of risk pertaining to the project. Also,
by figuring out the likelihood of success and failure the project would
produce. You would do that by subtracting the net sale of the projects total
cost and calculating the net present value (NPV). Other information I would
collect would be previous trends of my competitors, how they failed, what they
succeeded at and other failures my competitor encountered. By researching my
competitor I can learn from their mistakes without having the monetary fallback
they had. My competitor’s bottom line is something I would also pay a lot of
attention to. I would take into consideration the launching costs they incurred
as well as their net sales. The tools I would use would to project the value of
the project would be linear programming and project forecasting. These two
tools would help me get a better picture of the future potential outcome of the
project.

 

 

 

Part 3

The risk pertaining to Project 1 can be figured out by researching
market risk and rate of success/failure of previous projects similar to Project
1. Also by looking at the success rate of similar projects you can gain
valuable information about the project’s market adaption and potential success.
A quantitative tool that would be beneficial would be Forecasting. The only
caveat to forecasting is that forecasting requires a lot of information to be
accurate. So, Project 1 would need to have many averages to be used in
forecasting.

 

 

 

Part 4

With
next year’s R budget for the oncology area being
reduced to $50 million I would decide to fund the project in the oncology
department with the highest return on investment. Because funds have been cut drastically
in this department it is very important to support a project that has
historically been successful. I made that decision because the oncology
department needs to recoup some of the losses occurred from the cut in funding,
the best way to do that is to support the most successful projects to date. MNE
blockbuster projects have the potential to recoup some of the losses over LCM
projects. I would put a hold on projects that have a historical low probability
of success and that are in the first stage “basic research” because this stage
costs 30-50 million. ROI (Return on investment) would be a great basis to
determine which projects should continue to be funded and which projects should
be put on hold. I think that the deterministic decision model would be the best
quantitative tool to determine whi

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