# Goodwill - Research & Development

09.07.2019

Factor “R&D” is 1 out of 8 factors that GMC simulator uses to calculate the company's Goodwill value. Below are presented parameters from decision and management report that are most correlated with Goodwill factor “R&D” when calculating the company's Goodwill value. Parameters include direct and inverse correlation:

- R&D development budget
- R&D development
- Implementation of R&D improvements

**R&D development budget**

Diagram below shows dependence of Goodwill factor “R&D” on R&D development budget for 14C1 scenario in 1 period. Previously received improvements are not implemented, 1 MINOR improvement was received for 1 product, i.e. conditions for all companies are identical. Diagram shows slight noise from factors of minor importance, which were excluded from analysis.

Goodwill factor “R&D” is not significantly dependent on competitors in the group (for example, compared to demand factors). Trend can be seen.

**R&D improvements**

Diagram below shows dependence of goodwill factor “R&D” on R&D improvements implemented for the 14C1 scenario in 1 period. MAJOR improvements hidden in history for all 3 products were implemented, R&D budget was 110. Diagram show distribution of goodwill factor “R&D” depending on number of MINOR improvements:

- 6 - 1 MINOR
- 12 - 2 MINOR
- 18 - 3 MINOR

Diagram shows that each received MINOR / MAJOR increases goodwill factor “R&D” by 0.01 points. In separate comparative analysis of received MAJOR and MINOR, there was no difference in increase to goodwill, i.e. weight in the goodwill factor “R&D” from both improvements is equivalent.

However, received improvements for different products are not equivalent for goodwill. Diagram below shows dependence of goodwill factor “R&D” on product for which was received R&D improvement for 14C1 scenario in 1 period. Budget for R&D is 60, received 1 MINOR for 1 or 3 product, implementing of MAJOR improvement hidden in history was not done. The upper point is MINOR for product 1, the lower points are MINOR for product 3.

Difference in estimation of goodwill factor "R&D" amounted to 0,020 points. So, improvement of 1 product is most appreciated, then 2 and 3. It is most advantageous to develop R&D in exactly this sequence. In general, maximum of goodwill factor “R&D” is almost guaranteed to be achieved when any 3 developments are received within one period and R&D budget is equal to 100.

**Implementation of R&D improvements**

Diagram below shows dependence of goodwill factor “R&D” on implementation of R&D improvements for 14C1 scenario in 1 period. R&D budget is 90, received 1 MINOR for 1 product. In history of 14C1 scenario, 4 previously unimplemented MAJOR improvements are hidden: 2 for 1 product and 1 for 2 and 3 products. Diagram show number of products where MAJOR improvements was implemented (not the number of MAJOR, but the number of products).

You can see that number of implemented improvements is not taken into account (it does not matter 2 MAJOR for 1 product or 1 MAJOR for 2 and 3 products), the fact of implementation is important itself only (yes or no), since trend linear. If there are no improvements for implementation, then decision about implementation improvements will not affect goodwill factor “R&D”. In order to maximize goodwill, it is important to have in store MAJOR improvement not previously implemented, i.e. potential. If improvement is implemented, than goodwill factor “R&D” is reduced by 0.015 for each updated product.

**Hints:**

- Goodwill factor “R&D” can vary between 0.914 - 1.069.
- Value of the goodwill factor “R&D” does not depend on value in previous period or on decisions of competitors in the group.
- Optimal strategy in the period is to get 3 any improvements (MINOR / MAJOR).
- In last period, it is necessary to evaluate effect of implementation of MAJOR recieved in previous periods, and to implement them only as a last resort, when it will give greater effect to other factors of goodwill from the increase in demand.

Automatic forecast of Goodwill and Investment performance is built into the Calculation model, which can be purchased in our store.