Relevant Aspects of Performance Evaluation of Innovation Projects
Yu.V. Trifonov,
д-р экон. наук, проф., зав. кафедрой информационных технологий и инструментальных методов в экономике, Нижегородский государственный университет им. Н.И. Лобачевского (603950, г. Нижний Новгород, пр. Гагарина, 23; e-mail: decanat@ef.unn.ru) S.N. Yashin,
д-р экон. наук, проф., зав. кафедрой менеджмента и государственного управления, Нижегородский государственный университет им. Н.И. Лобачевского (603000, г. Нижний Новгород, ул. Б. Покровская, 60; e-mail: jashinsn@yandex.ru)
E.V. Koshelev,
канд. экон. наук, проф., доц. каф. менеджмента и государственного управления, Нижегородский государственный университет им. Н.И. Лобачевского (603000, г. Нижний Новгород, ул. Б. Покровская, 60; e-mail: ekoshelev@yandex.ru)
Аннотация. Исследованы современные финансовые проблемы оценки эффективности инновационных проектов в России, к числу которых отнесены: выбор денежного ориентира, позволяющего сформулировать цель инвестора при реализации инновационного проекта; инвестиционный анализ инновационного проекта; планирование финансирования проекта; управление мотивацией топ-менеджеров компаний; применение реальных опционов в инновационном развитии отечественных компаний.
Abstract. Present-day financial problems of evaluating the efficiency of innovation projects in Russia have been analyzed, which problems include: selecting a monetary reference point enabling an investor to formulate an objective while implementing an innovation project; investment analysis of an innovation project; planning project financing; managing motivation of corporate top managers; using real options in innovative development of domestic companies.
Ключевые слова: инновационное развитие, добавленная стоимость, инновационная стратегия, мотивация топ-менеджеров, экономическая добавленная стоимость, оценка реального опциона, азиатский опцион.
Keywords: innovative development, value added, value added, real option valuation, Asian option.
1 Introduction
Innovative development is an advanced method of running a business in this day and age, which is based on continuous search and use of new methods and areas for implementing potentials of a company in this fluctuating environment.
Developing by innovative way, a company needs to improve its production capacities and logistics system, and to optimize its product sales pattern adapting them to changes. At the same time, rearrangement of the organizational structure of administration is under way, employees and managers are gaining their experience and enlarging their knowledge, the system of interaction with economic partners is being refined, and the company image is being created and solidified. In this connection, innovative capacity is growing, the company's adaptive capacity to alterations of the environment is enhancing, which may in turn allow implementation of new opportunities ensuring sustainable development of the company.
The key problem of the Russian economy has remained unchanged since the Soviet times, that is a low technological equipment status of production. In the Soviet period, the production modernization challenge was met through administrative resource leveraging inside the country along with certain foreign-funded equipment procurement activities while preserving overall isolation of the eco-
innovative strategy, top managers' motivation, economic
nomic system. At present time, the only method of modernization includes direct integration of the Russian economy into the world economy. According to international practices, transfer of technologies and infusion of foreign investments into technological re-equipment of production facilities only occur if the economic system of a country is so far integrated into the economic process of foreign countries that the interdependence arising in this respect improves the involvement of contributing countries in export of technologies and investments.
The existing issues of innovative development of a country as an emerging market cannot affect formation of a true innovation-driven economy. The most indicative measures reflecting the feelings of external and internal investors with regard to Russia include stock indexes. Thus, for instance, Russia's WTO accession in September 2012 had an immediate impact on the dynamics of MICEX index (Figure 1) (www.nettrader.ru). Its downward change continued through to December 2012.
In this regard, it is important to understand the significance of innovative development of Russian companies, which would contribute to overcoming these negative points on a long-term horizon. However, in order to plan such development, it is required to rely on progressive approaches and methods adequate to the existing conditions of the domestic economy for performance evaluation of innovation projects.
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2 Actual Problems of Performance Evaluation of R&D Projects
In the first instance, it is necessary to select a certain reference point making it possible to formulate that objective, which an investor has to achieve in consequence of implementing an innovation project. Profits and cash flows fall out because they do not consider internal growth perspectives of the innovative capacity of a company. Western economists suggest that economic value added (EVA) and market value added (MVA) should be used for this purpose. Although these indicators are new criteria of investment evaluation in Russia, they
are anyway only certain modifications of the value added measure known in the Soviet economy.
Any business primarily implies obtaining money from it in the form of receipts and profits; however, for monetary valuation of investment performance, more relevant will be indicators proposed by Krylov, Vlasova, Zhuravkova (2006) since the economic efficiency of investment consists not only in obtaining, for instance, profits, but in receiving required funds for further development of using equipment and labor force. Following the recommendations of the above mentioned authors, one may use value added (Figure 2) and net value added (Figure 3) as such indicators.
Income before provision for income tax (P) Depreciation of fixed assets and intangibles (D)
+
Income (PD)
Labor costs with allocations for social needs (U)
Added value (UPD)
Figure 2. Value Added Building Mechanism.
+
Net profit forwarded to accumulation, consumption and social funds, to reserve capital and for payment of dividends (N1) Depreciation of fixed assets and intangibles (D)
+
Net income (NID)
Labor costs with allocations for social needs (U)
Net added value (UNID)
Figure 3. Net Value Added Building Mechanism.
Using designations introduced in Figures 2 and 3, we will obtain formulas for calculating value added and net value added (Yashin, Koshelev, Kuptsov, 2011):
UPD = U + PD = U + P + D , UNID = U + NID = U + NI + D. Such selection of target measures by an investor makes it possible to somewhat differently give a glance at the known schedule of product life cycle (Figure 4). As is clear from the schedule, accounting in financial estimates of depreciation elements (D) and salary expenses with allocations for social requirements (U) increases the schedule of
product life cycle itself. It is not at all obligatory that the minimum of net value added UNID is achieved in zero. It may be negative or positive, but it must be always higher than the schedule of net income NI. The growth of the components D and U of net value added UNID, for instance, during implementing an innovation project for development and sales of product B, may increase the UNID schedule of product B higher than the UNID schedule of product A, and this fact should be estimated positively as this will eventually result in upbuilding of the company's innovative capacity.
RUB
UNID
Figure 4. Life Cycle Curves of Products A and B.
Despite the visual appeal of using value added and net value added for performance evaluation of innovation projects, it is still not enough to use such generalization of individual evaluation factors. In any innovation project, apart from physical and technological peculiarities, it is required to separately consider its economic component and financial component. The latter implies as follows:
(1) investment analysis of innovation project;
(2) project financing planning;
(3) corporate top manager incentive management.
Let us consider them in detail.
(1) Julian Roche, a well-known finan-
cial analyst, from our point of view, uprightly asserts that in performance evaluation of investment projects, it is much more important to predict a cash flow, rather than to select an adequate price of the project capital WACC. With specific reference, he shows that any error in predicting cash flows has a more serious impact on NPV changing than any error in estimating WACC (Roche, 2005).
A project cash flow prediction is in many respects dependent on marketing forecasts with regard to sales opportunities, but the problem is not satisfied by this. It is also important to make a rational choice while calculating the cash flow itself.
Making a contribution, for instance, to the viewpoint of Limitovskiy (2008), we propose to use the following cash inflow of the project:
CIF = EBIT(1 - T) + D + ANWC + L + Claims,
where EBIT - earnings before interest and taxes (operational profit);
T - income tax rate;
D - depreciation charges;
ANWC - change in net working capital (additional working ass
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