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Wouldn't it be cool if you could test your next great business venture in a virtual sandbox before you spent a lot of money to prove the concept in the real world? We provide exactly this--a framework with which you can link every business logic to their financial impacts.
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s conomic
What if you could
the
business?FUTURE
of your
What if you could
If you could
VALUEthe
of ...
ACQUSITION... theyou are
planning ...
VALUEthe
of ...
MARKET... entering
a new...
VALUEthe
of ...
PROGRAMHEDGING
... your
...
VALUEthe
of ...
PRODUCTION... building
...SITE
a new
VALUEthe
of ...
... alternative
PORTFOLIOSproduct
...
... alternative
PORTFOLIOSR&D
...
real estatePORTFOLIOS... alternative
...
VALUEthe
of ...
LEVERAGINGyour firm ...
...
VALUEthe
of ...
MODELBUSINESS... an entirelynew
www.businessmodelgeneration.com
For this you need just
3THINGS
1
Athat doesn’t start with ...PLANNING
NUMBERSthe
but with the
behind themBUSINESS LOGIC
PLANNINGWith such a
DRIVER-BASED...
Balance Sheet
Cash Flow
Income Statement
every financial figure......
Balance Sheet
Cash Flow
Income Statement
results from the... business model.logic of your
And every single partof the model...
like thesales model
or themodeling o
fsupplies
delivers a consistent... set of financial statements.
You can think
You can think of this
of thisconcept...
as having a
You can think of this
standardizedPORT......
You can think of this
with whichyou can... link
LOGICYou can think of this
with whichyou can... linkany toBUSINESS
FINANCIALSthe
PLANNINGWith such a
DRIVER-BASED...
DECISIONS
you can see...the
of yourCONSEQUENCES
http://en.wikipedia.org/wiki/File:04KJER0243.jpg
before youtake action
in theREALWORLD
2
Athat doesn’t rely on ...PLANNING
SINGLE-POINTESTIMATES
SINGLE-POINTESTIMATES
rather than on theFULL RANGE
of possible outcomes
Because
REALWORLD
in the
...
... the future is
NOSTRAIGHTROAD...
... instead it’s full ofUNCERTAINTY
RISKand
INPUTS...
Therefore, the
of your planning model
with certaintymust not only contain ...
the things you know...
like last
year'sfigures
you don't know exactlybut also those things...
...
of market pricesdevelopmentlike the
your productsdemand foror the
in the future
a range of possibleyou can always define
Even for those thingsyou don't know exactly,
values.
OUTPUTSo, the...of the planning model
shouldn’t look like...
THAT
and...
THAT
likeNOT ONLY
and...
THAT
likeNOT ONLY
i.e. just expectedvalues
MUCH MOREInstead, you should see
...
MUCH MOREInstead, you should see
...Probability bands showing the possible range of future development
MUCH MOREInstead, you should see
...Probability density charts showing the relative likelihood of possible values
MUCH MOREInstead, you should see
...Cumulated probability functions showing how likely a certain outcome is
"key values"
All these statistical views,along with others,
are not only availablefor certain
...
but for every single itemwithin the model.
...
but for every singel itemwithin the model.
...
but for every single itemwithin the model.
...
but for every single itemwithin the model.
...
RISK ANALYSISEXPLICITWith such an
...you can see how likely it is
to achieve a desired result, ...
40% chanceto earn les
sthan €25m
...
to have enough headroom......given your funding sources
substantialrisk to gobankruptthe year after next
or whatever elseyou are interested in
...
MARGIN
Because theis in the
ACTUAL INFORMATION
...
... and not in the average
www.flawofaverages.com
... and not in the average
Like with the statistican who drowned crossing a river that was 3 ft. deep—on average.
www.flawofaverages.com
3
Athat doesn’t play with ...VALUATION
RATEthe... DISCOUNT
...
RISKto account for......
RISKINFORMATION
rather than harnesses the...about
we already have
From our risk analysis,we not only know ...
e.g. the variance ofthe probable
Net Income
or theFree Cash Flow
but every single scenarioproduced by the
...Monte Carlo simulation.
Assuming we put everysubstantial risk
carefully into our model ...
this is
that probably
can happen.
everything
that probably
this iseverything
can happen.
OK, not exactlythese few samples,but running somethousand simulationsyou get pretty close...
Having captured all risk within the cash flows,there is no need to ...
+%
NPV
use a...risk premium
to calculate net present value.%
+%
NPV
use a...risk premium
to calculate net present value.%
%
Instead, we can
simply use arisk-free
rate.
%Discounting every scenario
with the risk-free rateleads to a distribution of NPV.
%Discounting every scenario
with the risk-free rategives us a distribution of NPV.
But what's the
of thatdistribution?fair value
into a single VALUEwe can turn this distributionVALUATIONOPTION-BASED
With an
,
what does this mean?So,
Nothing less than:
We canEVALUATE ...
EVALUATEWe can
s conomic
