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Business Economic Value
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Business Economic Value

Business Economic Valuation (BEV) is a proven method that improves decisions by quantifying an accurate monetary  value for an initiative e.g. an information technology project.

Using measurement tools from other industries and professions, BEV allows the Total Return on Investment - TROI - to be determined. Furthermore, BEV provides a risk adjusted return using costs, benefits and risks (including intangibles)

 


Service Overview  

Busniess Decisions Economics, Inc helps executives evaluate projects as ongoing capital investments with measurable benefits and risks. The results are a powerful enhancement to the usual methods (CBA, EVA, ROI, Scorecards etc) reducing the uncertainty about the economic justification and life cycle value.

With the Business Economic Value (BEV) methodology, Busniess Decisions Economics consultants:

  1. Use a unique BEV framework and toolset to calculate the value of investments by improving the accuracy of valuation before, during or after the fact.  This is accomplished by reducing the uncertainty about 1. the costs, 2. the benefits including intangibles, and 3. the risks of the investment.
  1. Apply an approach combining empirically derived concepts in Economics, Statistics, Decision Analysis, Information Theory, and other scientific disciplines.
  1. Believe and demonstrate: 1. You can measure anything, 2. You can make decisions based on rational valuations without perfect information, 3. Anything that has value has economic value, and 4. Information has an economic value that you can calculate.
  1. Quantify benefits that seldom appear in a CBA analysis because analysts erroneously think they are “fuzzy” and can’t be quantifiably measured.  As a result, funding decisions are often made on incomplete evidence and compelling information is not adequately considered.
  1. Identify the investment’s most sensitive variables and quantitatively compare the cost of gathering additional information to the value of reducing the uncertainty of those variables.
  1. Calculate the economic impact of the investment’s risks (e.g., cancellation, acceptance, technology atrophy, etc.) and justify risk mitigation strategies (e.g., real options, multiple alternatives, etc.) to offset the risk and optimize the investment.
  1. Prioritize portfolios, using modern portfolio theory, on the basis of a complete economic profile of each investment. Using scientific methods, graph corporate objectives and past successes to create a decision confidence chart for acceptance, rejection or further analysis of project requests.
  1. Understand and model the “Cost of Waiting’’, “Revenue Deceleration” and the “Expected Opportunity Loss” if the project is delayed or not implemented.
  1. Use the BEV framework and tool kit for business system life cycle value management.
  1. Deliver project valuation in less than 6 weeks (usually 4 or less) at a total analysis cost of 1/2 % to 2% of the project’s investment cost.  The economic value received from a Busniess Decisions Economics analysis is documented and typically exceeds 10 times the fees and effort needed for the analysis.
  1. Deliverables consist of:
    1. Busniess Decisions Economics findings, recommendations and consultive review
    2. A full report, including one section for each BEV process step
    3. The final Excel spreadsheet model reflecting the investment’s costs, benefits, risks
    4. All deliverables prepared use your preferred metrics, such as ROI, IRR, NPV, EVA, etc.

12 Key Concepts

 1.         The lasting economic value of your business is in the information you add to your products or services; not the commodities you produce  

2.         Effectiveness is more valuable and harder to measure than efficiency  

3.         Benefits from innovation are even harder to measure, but often are more than 10 times more valuable than other benefits  

4.         Multiple perspectives add noise or information to decision making; the key is to filter out the noise and amplify the information  

5.         A good information infrastructure is essential to support strategic organizational changes  

6.         Risk adjusted benefit analysis reflects the business impact (economic value) of your decisions  

7.         More time should be spent on benefit and risk analysis vs. cost analysis (TCO)  

8.         Your history can tell you where the probability is higher for success  

9.         Real I/T options today can shorten the time to market for future new business functions and processes  

10.     The determinant of an application’s life cycle should be it’s value contribution (creation or maintenance); regulated by a process called value management  

11.     Each category of I/T application work (e.g. maintain, enhance, innovate) has a set of unique success factors for value within each line of business (LOB)  

12.     Business Economic Valuation (BEV) integrates these 12 concepts to deliver information (reduce your uncertainty) about the full potential of the contributions of business initiatives (decisions).