Abstract: How to give incentive to the "failed" projects is a difficult issue. A method of real options incentive to R&D teams which is suitable for "failed" R&D projects is discussed. This approach looks at the enterprises resources and capabilities accumulations in the "failed" project as option value components of follow-up technical projects. These options include the option to defer, the option to contract, the option to change scale, the option to abandon, the option to switch, and the option to growth (the upgrade of products). The firms could choose appropriate option incentive schemes and exercise methods by the value of different real options.

Key words: real option, incentive, "failed", R&D project