Linear Programming Techniques
in R & D Project Planning*
D. H. Allen
Chemical Engineering Department,
University of Nottingham
In a multi-project industrial R 8 D
organization the selection of projects
with potentially good payoffs has
to be fitted in with the planning of
on-going projects as they compete
for the same expert staff laboratory
equipment, pilot plant rigs and
other facilities and resources. A
linear programming approach to
this planning problem takes account
of any flexibility possible in allocat-
ing resources to projects, and in
their timing. in finding the ‘best’
plan. This is the one which maxi-
mises the potential payoff for the
whole ‘portfolio’ of projects and
makes the most efficient use of the
available resources. The principles
of the formulation of such LP
models and the interpretation of the
results produced in terms of practi-
cal planning are discussed.
INTRODUCTION
N THE MANAGEMENT OF RESEARCH AND
I development, a large R & D organi-
zation with many diverse projects presents
particular problems in the selection and
timing of new projects and in planning the
progress of on-going ones. Besides taking
into account the merits and needs of
individual projects it is necessary to relate
these to the allocation of the available
budget, research personnel and research
facilities between the different projects.
In industry, projects usually are, or should
be, selected and carried out because the
company concerned hopes thereby to
benefit in some tangible way. Expenditure
on R & D is an investment for which a
return is expected, as with any other
*This article is based on a paper presented at an
Institution of Chemical Engineers Symposium on
“The Management of Product and Process
Innovation”.
FEBRUARY, 1974
business investment. In a vigorous R & D
organisation potential and existing projects
compete for the limited resourses
available. The whole range of its activities
therefore needs to be coordinated and
planned to ensure that resources are used
efficiently to obtain the best possible total
benefit, The use of a properly formulated
and interpreted linear programming model
of the situation can help in achieving this.
THE BASIC PROBLEM
This is to select and progress projects in a
way which will lead to the achievement of
the best total benefit, within the limits set
by the resources available to carry them
out. Table 1 gives numerical measures of
the individual benefits expected from
carrying out each of three projects A, B
and C, the amount of a resource (e.g.
money) which each would use, and the
total amount of this resource available.
A simple benefit ranking procedure could
be used to select projects to the limit of the
available resource. The projects are shown
ranked in this way in Table 2, in the order
B, A, C. Following this method, only B
would be selected, using 6 units of the
resource and with a benefit of 35. A cannot
also be selected since it needs 5 units of
resource and only 2 are still available.
However, it can be seen that if A and C
are selected instead of B, the total benefit
is 55 for a combined acceptable resource
usage of 8 units.
Methods of project selection which use
mathematical programming techniques
Table 1. Projects for Selection.
Table 2. Projects Ranked
Project Benefit Resource
B 35 6
A 30 5
C 25 3
explore combinations of projects to find
the set which maximizes their total
combined benefit within the permitted
total research usages. Linear programming
is the most useful technique for this. In its
general form it finds the values of _‘ci. . ..Y,,
which satisfy :
Maximise 2 hj.X/
imI
N
subject to the constraints: Z a;jxi < c;
j= 1
and xi > 0 for i = 1,2 . ,117
where ali, bi and Ci are constants.
The solution of this type of problem is
performed by well-established iterative
procedures which are easily programmed
for a computer. The user is therefore
mainly concerned with the formulation of
his problem in these terms and in the
subsequent interpretation of its solution.
The linear programming (LP) formula-
tion of the previous trivial project selection
problem is given as an LP matrix in Table
3. The three projects A, B and C are
represented by ,x1, x2 and xj. These
variabIes are individually constrained
between 0 and I. If xj =: 0 the corres-
ponding project is not selected: if -ui -= 1
the project is selected. The objective
function coefficients are the project ‘bene-
fits’, and the remaining constraint governs
the allocation of the one resource. In the
optimal solution x, =y I, x2 = 0, x3 --: 1
and the maximized value of the objective
function is 55, indicating the selection of
A and C and the rejection of B.
61
 Table 3. LP formulation
Projects
Xl x2
Objective function 30 35
Project Selection 1 <
Constraints 1 <
Resource Constraint 5 6
It is of course possible for projects to be
‘partially’ selected by this type of model,
i.e. xj can have intermediate values between
0 and 1. This does not usually occur very
frequently, since a characteristic of the
solution of an optimization problem is for
variables to take extreme values. The
significance of partial selection is discussed
in more detail later.
The measure of estimated potential
project benefits must be additive in order
that the combined benefit of the total
project ‘portfolio’ may be maximized.
A measure commonly used is net present
value (NPV), i.e. the total future benefits
discounted at an appropriate rate to a
single cash figure. Measures expressed as
percentage returns, e.g. DCF return, are
not additive and cannot be used.
The application of linear programming
in the R & D field has been discussed by
Allen and Johnson, 1,2 Bell and Read3 and
others, and represents an extension of
previous work on the optimal allocation
of funds to capital investment projects.4
The main difference between R & D and
capital investment models is that in R & D
there is usually a larger number of smaller
projects to consider which utilize several
types of resources not readily inter-
changeable, at least in the short-term.
The degree of uncertainty in the eventual
outcomes of R & D projects (their benefits)
may also be higher than is usually
acceptable with capital projects.
DEVELOPMENT OF AN LP
PROJECT PLANNING MODEL
An LP model is of most value in situations
where there are several types of resources
to allocate, and where not only the
selection of new projects is considered,
but also alternative ways of carrying out
new and existing projects. The future
planning of projects and the allocation of
resources may also be dealt with in several
distinct time periods. Various features
which may be included in comprehensive
LP project planning models will now be
considered.
Generalizing from the earlier example,
the LP matrix of Table 4 is obtained.
62
of Project Selection Problem.
x3
35 Maximum
1 PROJECT VERSIONS
1 In practice it may be possible to vary the
1 =z 1
3 < 8
This consists of the objective function or
benefit row in which the potential benefit
of project Xi is the coefficient, bi, the
project selection rows with + 1 coefficients
and RHS’s, and the resource rows in
which ri, Si and fi are the amounts of the
available resources R, S, and T which are
used by project xi if it is selected. The
Table 4. Simple
Xl x2
Objective Function 4 4
1 <
Selection Rows
5 r2
Resource Rows Sl s2
t1 t2
selection rows ensure that each project,
with its associated benefit and usage of
resources, can only be selected once.
Resource rows can be concerned with
such things as financial resources (capital,
revenue), facilities (pilot plant, analytical
equipment) and staff. In a financial resource
row the coefficient of each project variable
is its appropriate cost in the time period
being considered and the RHS is the
corresponding total budget available. In a
facility constraint the coefficients are the
proportions of available capacity (e.g. as a
percentage) used by each project. Capacity
involves the length of time a facility is
used as well as the amount, so that using
50 per cent of a facility throughout a time
period is the same as far as the model is
concerned as using 100 per cent for half
the time period. Similarly in a simple
staffing row the project coefficients rep-
resent the man-weeks (or similar measure)
they each would need in the time period
and the RHS the corresponding total man-
weeks available. The allocation of staff by
a project selection model may also imply
the allocation of some other resources,
e.g. costs and equipment closely associated
with staff usage, in which case there is no
need to include these separately.
allocation of resources to, and the timing
of, a project if this is desirable for the
project portfolio as a whole. Such flexibility
may be built into the model by including
different ‘versions’ of a project. A project
may for example be described in alternative
‘slow’, ‘normal’ and ‘fast’ versions,
referring to the rate at which they use
various resources. Taking extremes, a
slow version could include the minimum
amounts of each resource needed just to
keep a project going, and a fast version
the amounts needed to complete the
LP Project Selection Model.
Projects
x3 . . . x,
b, . . . 6, Maximum
1
1 < 1
1 < 1
1 < 1
r3 . . . rm < R
S) . . . s, < S
t, . . . t, < T
project in the shortest possible ‘crash
time. In a multiple time-period model, to
be discussed later, there is also the flexi-
bility of having alternative project versions
starting and stopping at different times, so
that the most appropriate timing can be
selected.
Different versions of a project will
usually have different potential benefits
arising from the differences in timing and
resource usages. The resulting optimal
solution will select the ‘best’ combination
of project versions as well as of projects
themselves, that is, the combination which
has the best total project portfolio benefit
with the available resources.
In the formulation of a model a variable
is needed for each project version. Versions
of the same project are mutually exclusive,
so that if one is selected the rest must be
rejected. This is achieved by giving each
version of a project a $1 coefficient in
that project’s selection row, as shown in
Table 5, where xij refers to project i version
j. Each project version variable also has its
LONG RANGE PLANNING
appropriate coefficients in the objective or other resources which are partially row is required as shown in Table 7. Q is
function and the resource rows. interchangeable. R and S are the available the additional amount of resource R
available and the value of variable y gives
Table 5. Project Version Selection Rows.
the amount of it used.

Project Project Project

1 2
x11 x12 x13
Selection Rows 1 1 1 <
An essential requirement in formulating
this type of project planning model is that
projects are defined in such a way that
both projects and project versions are
independent of one another, so that the
selection of one project or version does
not presuppose the selection of any other.
Where actual projects do in fact interact
the different alternatives should be
presented as versions of a combined
project. For example, if project A can be
done alone but project B can only be done
:f A is done as well, this is presented as a
combined project C having two alternative
versions with the benefits and resource
requirements of A and A+ B respectively.
If, as often happens in practice,
particularly with an on-going project,
there is no question of a project not being
selected, there may still be flexibility in
choosing the most appropriate version of
it to fit in with other projects. In this case
the ‘<’ in the selection row for the project
is changed to ‘=‘, i.e. the project is made
mandatory so that a version of it must be
selected.
3
x21 x22 x31
1 1
amounts of each which are independent,
I is the amount which can be used as
either additional R or S. In a solution the
values of the interchange variables i, and
i, are the amounts of Z used as additional
R and S respectively. The R and S rows
state that the amount of each resource
allocated to the projects, minus the amount
of the interchangeable resource used,
cannot be more than the amount of each
independent resource available. The inter-
change row limits the sum of the values of
the interchange variables to the amount of
interchangeable resource available, I. The
general pattern of this formulation can be
extended to any number of interchangeable
resources.
Table 6. Partially
Projects
x,,
R row r,,
S row s,,
MULTIPLE TIME PERIOD
MODELS
Since the coefficients showing the resource
1
usages of project versions are only the
< 1 averages for the time period being con-
sidered, a more detailed representation
can be obtained by replacing the planning
period by shorter distinct intervals. For
example, instead of a single planning
period looking one year ahead it may be
better to have, say, three separate periods.
The first could be the immediate three
months ahead in which the detailed
planning of projects and allocation of
resources is considered; the next 9 months
as the second period could be less specific,
for example treating total staff as one
resource, and a third period of 12-24
months ahead could be in very general
terms involving perhaps only financial
resources.
In a multiple time period model the
number of project version variables remains
unchanged and there is of course only one
benefit coefficient in the ob.jective function
Interchangeable Resources.
and Versions Interchange Variables
. . . . X,” ir is
. . . rmn -.- 1 < R
. . . s,, -1 < s

R/S interchange 1 1 d I

FURTHER CONSIDERATION OF
STAFFING AND OTHER
RESOURCE CONSTRAINTS
The most important resource in planning
the selection and progression of projects
may very well be the research staff, in
which case it can be advantageous to pay
more detailed attention to staffing in the
model. Staff with different types of
expertise, or different levels of skills, may
be included as separate constraints, for
example chemists and chemical engineers,
or technical officers, experimental officers
and laboratory assistants. If in practice
some staff are able to function in more
than one of the specified categories, this
can be reproduced in the model by means
of staff interchange rows and variables.
The representation can also be extended to
other types of partially interchangeable
resources.
Table 6 shows the representation of the
situation wherethereare two staff categories
The effect of making available additional
amounts of any resource, for example the
recruitment of extra staff, may of course
be explored by changing the appropriate
RHS. However, for reasons of clarity and
interpretation it can be useful to include the
facility separately in the model, particularly
in multi-time period models to explore the
incentive for making available additional
amounts of resources in the future. For
each resource an additional variable and
Table. 7 Additional
Projects and Versions
x,, . . . X,”
R row r,, . . . . rmn
Additional R row
for each project version. Its resource
usages in different time periods depend on
whether a version starts in a particular
time period, stops in it, or continues
right through it and at what rate. Thus the
resource rows in different time periods are
entirely separate, with separate project
version coefficients and RHS availabilities.
Similarly any other variables and rows
connected with resources (e.g. interchange)
are presented independently in each period.
Resource (Recruitment).
Additional R Variable
Q
.~ 1 <R
1 <c-I

FEBRUARY, 1974 63
A COMPLETE PROJECT
PLANNING MODEL
A project planning model should reproduce
as realistically as possible the salient
features of the actual R & D situation and
there are no rigid rules for its formulation,
except perhaps that it should be able to
select not only projects but also the most
appropriate plan (version) for a project.
To illustrate the form of a complete model,
some of the features so far discussed are
put together in the LP project planning
matrix of Table 8.
Table
Project
x11
Objective Function
Selection Project 1 1 . . . . 1
Rows Project 2 1 . . ..I
. . .
Project m 1
Budget
Time Staff 1
Period 1 Staff 2
Staff l/2
Time Budget
Period 2 Total Staff
It contains data on m projects and
alternative versions are offered for each.
The objective function has coefficients for
each project version representing the
potential benefit of that version of the
project. There is a project selection row
for each project, consisting of $1 co-
efficients for each version of that project
and a RHS also of + 1. Project 2 is
mandatory, so that a version of it must be
selected; the other projects are not
mandatory, so that they can be rejected or
a version selected, depending on what is
best for the project portfolio as a whole.
Two time periods are considered from the
point of view of the allocation of resources.
Tn the immediate one the resources
considered are a budget and two categories
of research staff. The project version
coefficients of the two staff rows are the
requirements of each version if selected,
and the RHS’s are the totals available.
There are some staff who can be effective
in either category and these are included
separately as the RHS of a third staff row.
The staff interchange variables which
indicate the way these staff are used each
have coefficients of - 1 in the corresponding
staff category row and +l in the third
staff row. The second time period contains
64
a similar budget row but staff’ are not BASIC CONSIDERATIONS IN
broken down into categories this far FORMULATING AN LP PLANNING
ahead, so that a total staff row is adequate. MODEL
The solution of the LP matrix, with the These are of three types depending on the
aid of a computer program of a type level in the company at which they should
readily available with most computers, originate. The first consideration is that
selects the set of values for the variables the model should reflect the corporate
within the ranges permitted by the con- objectives of the company. It is only
straints which maximise the value of the possible to optimize on one objective
objective function. Tt thus selects the function; if there are multiple objectives,
projects and versions (the portfolio) from one major objective must be chosen for
those offerred which achieves the highest maximization as the objective function
portfolio potential benefit and indicates and the other objectives maintained at
8. A Complete LP Project Planning Model.
TP-1 Staff
1 Project 2 Project m Interchange
. . . x10 '21 . . . ‘lb X ml . . ‘177” ir i2
Project version benefit coefficients = Max
< 1
1 1
. . . . . 1 < 1
Budget usage coefficients < Cl
Staff 1 usage coefficients -1 < Sll
Staff 2 usage coefficients -1 < s12
1 1 < ‘I
Budget usage coefficients < c2
Total staff usage coefficients < s2
the corresponding allocation of resources acceptable levels by expressing them as
. - .
between projects. The optimal solution constraints. ror example, total NPV at
also provides marginal economic informa- I5 per cent could be maximized subject to
tion (shadow prices) on the effect of a minimum constraint on the value of
changing the amount of any resource sales turnover at a specific time in the
available and of selecting alternative future. This would guard against any
projects or versions. tendency using NPV to concentrate on
Since an LP planning model is intended short-term projects at the expense of
to be a tool to assist research management, longer-term ones, and still provide the
the input and output of the model should most satisfactory way of meeting the
be in forms familiar to the management combined objectives. In this case the
rather than to a mathematician. To estimated contribution of each project
achieve this, additional computer programs version to turnover at the future date
may be written around the LP program to would become the coefficients of this extra
generate the LP matrix from the data constraint row.
provided and to interpret the LP solution The next considerations are at the level
into a detailed plan, as illustrated in of the R & D management and are
Table 9. concerned with identifying the resources
Table 9. Requirements of LP Project Planning Software.
1. LP matrix generation from raw data.
2. Printout of original data in meaningful form as a check for the users.
3. Identification list of matrix columns and rows for users’ benefit.
4. Full printout of generated LP matrix.
5. Details of LP iterations.
6. Listing of full LP optimal solution.
7. Interpretation of solution for users in terms of individual projects, resource usages, etc.
8. Interpretation of shadow prices for users in terms of ‘next best’ alternatives, etc.
LONG RANGE PLANNING
whose inclusion in the model are necessary,
the most appropriate time periods to use
and then the actual data on the amounts of
resources available in these time periods.
Finally, the actual projects themselves
are considered at the level of individual
project supervision. This is to resolve
questions of the project versions to be
included and the estimation of benefit and
resource usage data for each project
version. The estimation of benefit data is
usually the most difficult and time-
consuming part of using an LP project
planning model. However, this type of
information is needed for any optimizing
approach to planning and is not a specific
difficulty of LP models. In arriving at the
potential benefit of a project version it is its
incremental effect which should be con-
sidered, that is, the difference between the
future situation if the project is selected
and completed compared with situation if it
is not. Where the same results could be
achieved by alternative means, for example,
by licensing, it is the benefit relative to this
next best alternative that is required.
THE PROBLEM OF PARTIALLY
SELECTEDPROJECTS
Using a straightforward linear program-
ming method of solution, the ‘optimal’
project portfolio produced by a model may
contain partially selected project versions,
i.e. the value of one or more version
variables may lie between 0 and 1 instead
of being 0 or 1. There are a number of
practical reasons why this occurs. A single
partially selected project version may be
the last ‘marginal’ one which uses up a
residual resource to its limit. Thus the
project obviously should not be selected
unless sufficient resources can be made
available to do it properly, since a partial
project is meaningless.
It may also seem obvious to say that the
optimal solution can only consist of
project versions which have been included
in the model. If the most appropriate
versions of projects are not offerred for
selection they cannot be selected, and this
can also be the cause of partially selected
project versions. If for example the ‘normal’
version of a project is, say, 0.6 selected and
the ‘fast’ version 0.4 selected, this means
that the best version of the project may be
one in which the rate of resource usage
(and benefit) is somewhere between the
‘normal’ and ‘fast’ versions offerred.
Rerunning with a suitable intermediate
version included would confirm this.
Occasionally a partially selected project
version may not apparently fit either of
these explanations. A useful procedure
here is to rerun omitting the version which
was partially selected, as the resulting
reallocation and reselection may result in
a practical optimal solution.
FEBRUARY, 1974
An alternative approach altogether is to
solve the model by integer programming
which forces the variables in the solution
to have integer values, i.e. project version
variables to be 0 or 1. This is more
complicated computationally and, al-
though it produces a ‘tidier’ solution, this
may be unnecessarily distorted by not
providing information on the ‘marginal’
project or on the omission of desirable yet
feasible versions from the input.
UNCERTAINTY IN DATA
Uncertainty is of course a major factor in
R & D and cannot be ignored. In a project
planning model there may be uncertainty
in the availability of resources (the RHS’s)
the potential benefits of project versions
(objective function coefficients) and in the
resource requirements of project versions
(matrix body coefficients). Since it is a
simple matter to rerun a model with
changes in data, particularly if parametric
programming facilities are available, a
comprehensive sensitivity analysis can be
carried out to provide a ‘feel’ for how the
‘best’ portfolio responds to variations in
any input data, i.e. its ‘robustness’ in the
face of uncertainty.
The largest uncertainty is usually in
estimates of project version potential
benefits. It may be more realistic to
present these in the form of possible
ranges, probability distributions or discrete
alternative values with associated prob-
abilities. These may be reduced to single-
valued ‘expectations’ which then become
the objective function coefficients. An
alternative method also takes into account
the variances (as a measure of the spread
of the distributions) as well as the expected
values in arriving at the objective function
coefficients.
Another approach, which avoids the
somewhat arbitrary reduction of a potential
benefit distribution to a single figure, is to
use a method based on Monte Carlo
simulation. In this a large number of
LP runs are done, in each of which values
for the benefit coefficients are selected
from their distributions in such a way
that their frequencies of selection cor-
respond to their probability distributions.
A set of ‘optimum’ project portfolios is
obtained corresponding to different
possible benefit ‘futures’. The one finally
decided upon should where possible be
robust in the face of benefit uncertainty,
i.e. its frequency of appearance in the
simulation solutions should be high.
USEFULNESS OF LP PROJECT
PLANNING MODELS
LP project planning models have, to the
author’s knowledge, recently been tried in
several R & D organizations with varying
degrees of success. Like other quantitative
management techniques, their use should
be as an aid to the normal management
decision processes, and not a substitute for
them. An LP model draws specific and
logical conclusions from the input data
provided, but it must be borne in mind
that this data is in any case largely
subjective.
In order to be of any value the formula-
tion of an LP model must be acceptable to
the research management and research
staff as being a realistic representation of
their organisation’s situation and activities.
The results obtained must likewise be
explainable and acceptable in terms of
real projects and real people. For example,
although staff may be treated as an
impersonal resource in the model, the
results need to be interpreted in terms of
actual individuals, taking into account
wherever possible their individual pref-
erences.
Although the initial effort required to
introduce an LP project planning system
may be considerable, particularly in
gathering the data, its routine use involves
a much lower level of effort. Main ‘up-
dating’ runs need to be carried out at
intervals not exceeding the length of the
initial time period in the model. For these,
entirely new data will only be required for
a few new projects. Data for the rest will
only need revising to take account of the
effect of progress and changes since the
last main run. Also for ongoing projects
the number of versions in the model can
usually be reduced in successive updating
runs, lessening the amount of data
revision needed. Runs for sensitivity
analysis and similar exploration based on
the current model do not require extensive
changes to data.
Since an LP model needs to be tailored
to the particular needs of the organisation,
it is advisable to start with a relatively
simple model to gain experience, and to
add to it as and when the need is recognized.
This approach, rather than jumping in
straightaway with a more complex model
needing more data, helps to ensure that
the size of the model and its data require-
ments are kept to the minimum commen-
surate with its usefulness. ??
REFERENCES
(1) D. H. Allen and T. F. N. Johnson, The
Chemical Engineer, Volume 241 CE278
(September 1970).
(2) D. H. Allen and T. F. N. Johnson, R B D
Management, Volume 1, Number 2, p. 95
(1971).
(3) D. C. Bell and A. W. Read R 8 D Manage-
ment, Volume 1, Number 1, p. 35 (1970).
(4) H. M. Weingartner, Mathematical Pro-
gramming and the Analysis of Capital
Budgeting Problems. Markham, Chicago
(1967).
65