The Six-Minute Guide to Making Better High-Stakes Decisions

Harvard Business Review

When making big decisions, executives use familiar tools like discounted cash flow analysis far too often. It’s much more useful to take a different approach: to build multiple qualitative scenarios, for example, or to develop a set of comparative reference cases. That’s because the more uncertain a business context is, the less likely running some numbers and probabilities through a spreadsheet will be helpful.

Why We Need to Update Financial Reporting for the Digital Era

Harvard Business

Digital companies, however, consider scientists’ and software workers’ and product development teams’ time to be the company’s most valuable resource. However, many investors seem to have concluded that the most successful companies with tens of billions of dollars of valuation today could never have justified their valuation at the start of their operation based on discounted cash flow. Martin Konopka/EyeEm/Getty Images.

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What Private Equity Investors Think They Do for the Companies They Buy

Harvard Business Review

In operational engineering, PE firms develop industry and operating expertise that they bring to bear to add value to their portfolio companies. For instance, despite the prominent role that discounted cash flow valuation methods play in academic finance courses, few PE investors use discounted cash flow or net present value techniques to evaluate investments.

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Why You Should Crowd-Source Your Toughest Investment Decisions

Harvard Business Review

Most companies – including the movie studios in Hollywood – over-rely on basic tools like discounted cash flow and net present value. In highly uncertain contexts, the best tool is often “case based decision making” — developing a set of analogous situations (like the previously released movies), determining the results achieved in those cases, and then assessing how similar each case is to the decision at hand.

Why Sit on All that Cash? Firms Uncertain on Cost of Capital

Harvard Business Review

With a record $2 trillion in cash and short-term liquid assets on hand, U.S. Fully 79 percent of companies, including 91 percent with annual revenues greater than $1 billion, use discounted cash flow techniques. There is less consistency, however, in how organizations estimate cash flows and determine the weighted average cost of capital at which those cash flows are discounted.

Still Many Ways to Skin a Capital Cost

Harvard Business Review

When executives evaluate a potential investment, whether it's to build a new plant, enter a new market, or acquire a company, they weigh its cost against the future cash flows they expect will spring from it. To make sure they're comparing apples to apples, they discount those future cash flows to arrive at their net present value.

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