Managing Risk and Value in Bio/pharmaceutical R&D

The prime objective of Bio/pharmaceutical R&D is to create value for the corporation.  No project is initiated without the perception of a large potential value to the corporation.  At the start of a project, however, the risk that any aspect of the project will succeed is unknown.  All project Risk is loaded at the beginning – what we will call Aggregate Project Risk.  Every successful experiment chips away at the Aggregate Project Risk.  The Project Management Institute defines Risk Management as “the systematic process of identifying, analyzing, and responding to project risk.  It includes maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to project objectives.” 1  Fewer risks in a project mean greater probability of success (POS).   As the project team works to reduce risk, the total project cost increases, but because the POS increases, the value of the project and corporate commitment increases, Figure 1.  At each stage of Discovery and Development, work is performed to reduce risk and increase value.   Even though, the work at any stage adds cost to the overall project, the latter stages of work are far more costly than earlier stages.  Organizational commitment tends to increase as perceived value increases.

risk-vs-pos-value-cost-and-commitment

Figure 1, Relative relationship of Risk to POS, Value, Cost and Commitment

In the following subsections we will explore the management of risk and value in Drug Discovery and Drug Development.

  1.   “A Guide to the Project Management Book of Knowledge (PMBOK Guide) 2000 edition”, Chapter 11, p. 127