Business value analysis:  coping with unruly uncertainty

Strategy & Leadership

Volumn 29, Issue 2, 2001, Pages 16-24

  Thomas, Russell ^a  

^a KPMG LLP   (United States)

Author keywords

Business models; Decision making under uncertainty; Intellectual capital; Real options; Return on investment; Value based management

Indexed keywords

EID: 84993009921     PISSN: 10878572     EISSN: None     Source Type: Journal    
DOI: 10.1108/10878570110695129     Document Type: Article

References (10)

1. Based on the three factors described in the book, Blur: The Speed of Change in the Connected Economy, by Stanley M. Davis and Christopher Meyers (Little Brown & Company, Boston, MA, 1998).
2. For a good introduction to DCF analysis and associated finance theory, see Principles of Corporate Finance by Richard A. Brealey and Stewart C. Myers (McGraw-Hill, New York, NY, 1996).
3. Some of the things you can do to compensate for the DCF analysis difficulties include: Make estimates and assumptions for incomplete or complex data.
4. One other assumption is that capital markets are efficient. I am not going to argue about the efficiency of capital markets here, in spite of the recent Internet Bubble. Let us just agree that any inefficiency in the capital markets will have the potential to distort firm investment decisions, making our already difficult decision problem worse.
5. Other analysis techniques can also be used in BVA, including simulation and modeling, scenario analysis, Delphi consensus forecasting techniques, and premium value drivers (a proprietary method of KPMG Consulting).
6. The best introduction to real options for business people is Real Options by Martha Amram and Nalin Kulatilaka (Harvard Business School Press, Boston, MA, 1999). The material in this section draws heavily on this book.
7. See Intellectual Capital: Navigating in the New Business Landscape by Johan Roos, Goran Roos, Leif Edvinsson, and Nicola Dragonetti (New York University Press, NY, 1998); Intellectual Capital: The New Wealth of Organizations by Thomas A. Stewart (Doubleday, 1997); Intellectual Capital: Realizing Your Company's True Value by Finding Its Hidden Brainpower by Leif Edvinsson and Michael S. Malone (HarperCollins, Philadelphia, PA, 1997).
8. Roos, J., Roos, G., Edvinsson, L. and Dragonetti, N., Intellectual Capital: Navigating in the New Business Landscape, New York University Press, NY, 1998.
9. There are other ways of defining a business model, including comprehensive financial spreadsheets, process models, or information models. These variants are useful in many contexts but do not reach the core issues facing business value analysis. In particular, they are too detailed and do not give sufficient attention to capabilities and transformation.
10. The technology for automated synthetic market systems already exists. Examples include the Hollywood Stock Exchange (www.hsx.com), University of Iowa Electronic Markets (www.biz.uiowa.edu/iem/index). See also Cal Tech Laboratory for Experimental Economics and Political Science (eeps.caltech.edu), and the book, Future Wealth by Stanley M. Davis and Christopher Meyers (Harvard Business School Press, Boston, MA, 2000).