Will You Be Writing Off Your Investment in Egypt?

Harvard Business Review

Anyone who has had to make the argument for an investment knows the basic tool involved: a Net Present Value (NPV) calculation. The overall value of a foreign investment is equal to the NPV of the expected stream of profits for the life of the investment.

Rethinking Valuation So You Don't Miss a Good Deal

Harvard Business Review

Horizon 3 (H3) represents opportunities for future growth that may take the form of new products, services, capabilities, and perhaps extensions into non-adjacencies that show great promise but are highly uncertain. The higher level of uncertainty associated with H2 and H3 necessitates an updated valuation methodology that takes into account more than the net present value (NPV) of the target. The two together, NPV + OV, provide an inclusive but not inflated valuation.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

What Happens When Features Are Dropped To Make a Launch Date?

The Idolbuster

One common solution is to drop features from the product. Sabina” was a product manager working in lifescience industry who was part of a project that had to make that very choice. When the original product was scoped, it was designed to meet a set of unmet customer needs, and she created a healthy revenue forecast to justify the expense of development. Sabina explained that she felt “pressured to show there is value in doing the project, a positive NPV.

NPV 33

A Refresher on Internal Rate of Return

Harvard Business Review

You’ve got a great idea for a new product that will increase revenue or a new system that will cut the company’s costs. According to Knight, it’s commonly used by financial analysts in conjunction with net present value, or NPV.

IRR 11

Is Your Business Biased Against Innovation?

Strategy Driven

Net present value [NPV] is a case in point. The logic of NPV is to project cash flows into the future and then discount those flows back into today’s dollars at a given cost of capital. You will learn how to identify and prioritize your company’s full portfolio of opportunities – from new product lines to entirely new businesses. One problem is that NPV calculations tend to compare today with some future state.

NPV 50

Old Buildings Are U.S. Cities’ Biggest Sustainability Challenge

Harvard Business Review

Today large commercial buildings address only two percent per year of the NPV-positive investments in efficiency that are available to them.

NPV 16

What If Investors Who Held Their Shares Longer Got More Voting Power?

Harvard Business Review

I agree with their vision of a future in which more companies focus on the long term and become more productive for the world (their findings accord with my own work on the dangers of short-termism ). Next time you're deciding about a big investment, NPV can help you make a more informed decision. Joe Bower and Lynn Paine “had me at hello” (to quote Jerry Maguire ) with their new HBR article, “ The Error at the Heart of Corporate Leadership.”

Hedge 13

Lafley’s P&G Brand Cull and the 80/20 Rule

Harvard Business Review

In retail, Lafley observed , the 80/20 rule usually applied: “Twenty per cent of the brands and products account for 80 per cent sales.” Identifying the 80/20 products and brands is the easy part. To wit, cultures celebrating 80/20 innovation in product and process make different choices and investments than those celebrating “breakthrough” — dare I say “game changing”?

DCF 12

Why Is an App Worth as Much as a Small Oil Field?

Harvard Business Review

While on the surface, the dirty business of fossil fuels is nothing like Silicon Valley, many in the oil business have moved beyond the standard net present value (NPV) model for assessing the merit of investments. And, I would argue, it is also user experience – the ability to bring as much value to the surface of the product as possible. Since Facebook’s acquisition of Whatsapp, commentators have debated whether the app was worth it or not.

NPV 12

Hospital Budget Systems Are Holding Back Innovation

Harvard Business Review

While this might seem like a radical step for hospitals, it is exactly the transition that occurred 100 years ago in the business world in general when companies shifted from a departmental or functional structure to a decentralized, business-unit structure that that was more aligned with and accountable for its products, services, and customers. Gillian Blease/Getty Images. Nearly 800 digital health startups were funded in 2017, an all-time high.

Reflecting on David Garvin’s Imprint on Management

Harvard Business Review

One of the many articles circling back to this topic of late revisited the still-common use of NPV hurdles in investment decisions.) The articles — “Competing on the Eight Dimensions of Quality” (1987) and “What Does ‘Product Quality’ Really Mean?” David Garvin, who died earlier this month, was by all accounts one of the great Harvard Business School teachers, lighting up the classroom and the minds of his students over the past 38 years.

NPV 13

Life's Long Cruise? Planning for a Second "Me" Career

Harvard Business Review

Perhaps most important, we should be figuring out ways to remain economically productive — whether through part-time or project-based work or even a new entrepreneurial venture. Even modest continued earnings dramatically change the NPV calculation. I love meeting people who are planning to retire soon. What are you planning to do?" I always ask. Inevitably, I get an answer along the lines of "my wife and I are planning to take a cruise.".

NPV 16

Can We Quantify the Value of Connected Devices?

Harvard Business Review

In the 1990s, Procter & Gamble’s Product Supply Organization kicked off a major Reliability Engineering program, much like the efficiency initiatives of companies such as Toyota. They institutionalized the use of data collection systems in their manufacturing facilities to understand how products and machines would “behave” and could be optimized. On the cost side, what’s the sourcing cost, the production cost, and the distribution cost?


Stop Focusing on Profitability and Go for Growth

Harvard Business Review

Next time you're deciding about a big investment, NPV can help you make a more informed decision. The assets that are truly scarce at most companies are the skills and capabilities required to turn great growth ideas into successful new products, services, and businesses. Bain recently completed research on workforce productivity. The most productive companies have the talent they need to generate good growth options.

ROE 13

How to Improve Your Finance Skills (Even If You Hate Numbers)

Harvard Business Review

After all, if you’re trying to sell a product or strategy, you need to be able to demonstrate that it is both practical and high margin. Next time you're deciding about a big investment, NPV can help you make a more informed decision. That way, when you do need to “tabulate the consequence of a particular decision,” such as, whether or not to launch a new product or shut down a factory, you have the tools to do so.