Effectiveness evaluation of innovative project on the creation of biofuel production with option and fuzzy set analysis
0000-0001-8597-9788 The material was received by the Editorial Board: 10/12/2019
Abstract
Implementation of innovative projects at first stages is associated with risks determined by high uncertainty of cash flows. As such, the application of standard methods to analyze the project’s economic efficiency does not allow us to give reliable estimates of the forecast dynamics of economic indicators. All this requires the development of special techniques for the analysis of the effectiveness of innovation spending. The use of real options as well as fuzzy sets approach seems to be a basic conceptual focus for the further improvement of these methods.
The paper contains the results of the effectiveness estimation for an innovative project aimed at establishing motor fuel production from high energy biomass with the use of option and fuzzy sets analysis. The use of the proposed fuzzy sets methods makes it possible to complement the traditional financial analysis and quantitatively estimates sustainability of different indicators of the innovative project efficiency to a change in exogenous parameters. Besides, it could be rather useful to identify the project’s bottlenecks. Moreover, the application of this method allows to quantitatively estimate reliability of the calculated project effectiveness indicators. Hardly can such estimations be made by means of traditional methods of financial analysis; either low or high reliability of the obtained effectiveness indicators could serve as an additional argument in favor of negative or positive decision on the project finance, allowing a venture capital fund to allocate the resources among the analyzed innovative projects more efficiently.
On the whole, the use of the real options combined with the fuzzy sets method is sure to expand venture capital tools used for financial justification of submitted projects.
Keywords: investments, innovations, innovative project, venture finance, real options, fuzzy sets, biofuel, alternative energy sources.
Funding This work was carried out according to the plan of scientific research of the Institute of Economics and Industrial Engineering of SB RAS, project XI.170.1.1. “Innovative and environmental aspects of the structural transformation of the Russian economy in the new geopolitical reality”, No. AAAA-A17-117022250127-8.
References Implementation of innovative projects at first stages is associated with risks determined by high uncertainty of cash flows. As such, the application of standard methods to analyze the project’s economic efficiency does not allow us to give reliable estimates of the forecast dynamics of economic indicators. All this requires the development of special techniques for the analysis of the effectiveness of innovation spending. The use of real options as well as fuzzy sets approach seems to be a basic conceptual focus for the further improvement of these methods.
The paper contains the results of the effectiveness estimation for an innovative project aimed at establishing motor fuel production from high energy biomass with the use of option and fuzzy sets analysis. The use of the proposed fuzzy sets methods makes it possible to complement the traditional financial analysis and quantitatively estimates sustainability of different indicators of the innovative project efficiency to a change in exogenous parameters. Besides, it could be rather useful to identify the project’s bottlenecks. Moreover, the application of this method allows to quantitatively estimate reliability of the calculated project effectiveness indicators. Hardly can such estimations be made by means of traditional methods of financial analysis; either low or high reliability of the obtained effectiveness indicators could serve as an additional argument in favor of negative or positive decision on the project finance, allowing a venture capital fund to allocate the resources among the analyzed innovative projects more efficiently.
On the whole, the use of the real options combined with the fuzzy sets method is sure to expand venture capital tools used for financial justification of submitted projects.
Keywords: investments, innovations, innovative project, venture finance, real options, fuzzy sets, biofuel, alternative energy sources.
Funding This work was carried out according to the plan of scientific research of the Institute of Economics and Industrial Engineering of SB RAS, project XI.170.1.1. “Innovative and environmental aspects of the structural transformation of the Russian economy in the new geopolitical reality”, No. AAAA-A17-117022250127-8.
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References: Baranov А.О., Muzyko Е.I., Pavlov V.N. Effectiveness evaluation of innovative project on the creation of biofuel production with option and fuzzy set analysis. World of Economics and Management. 2020. vol. 20, no. 1. P. 20–45. DOI: 10.25205/2542-0429-2020-20-1-20-45