Value-Based Management

Every asset, financial as well as real, has a value. Every investment, project, company and strategic opportunity has a certain value. The ultimate goal of a company and its management is to optimize the value of its assets and to create additional value. Hence the value analysis of assets is crucial for economic success. Besides classical approaches like Discounted Cash Flow Analysis and Decision Tree Analysis I evaluate uncertainties and risks with Monte Carlo Simulation and Real Options Analysis.

The asset analysis shows which investments and projects can increase the value of your company best. It also shows how you can maximize the company’s value by optimizing existing assets.

Discounted Cash Flow Analysis

DCF Analysis is the base of every financial valuation. Valid project framing, correct incremental free cash flows, cash flow specific risk-adjusted discount rates and valid key figures are crucial points. This can be very complex in international projects with changing parameters and various uncertainties. I discount each cash flow seperately with its appropriate risk-adjusted discount rate (CCF procedure). NPV (and eNPV including strategic options) is the key figure for value creation and valuation. Decision Tree Analysis evaluates cash flow streams and probabilities of different scenarios. DCF Analysis should always be combined with Monte-Carlo-Simulation and Real Options Analysis.

Monte Carlo Simulation

MC-Simulation is a mathematical technique, which is used to estimate the possible outcomes of uncertain events. MC-Simulations have assessed the impact of risk in many real-life scenarios, such as in artificial intelligence, stock prices, sales forecasting, project management and pricing. They also provide a number of advantages over predictive models with fixed inputs, such as the ability to conduct sensitivity analysis or calculate the correlation of inputs. Sensitivity analysis allows decision-makers to see the impact of individual inputs on a given outcome. Correlation analysis allows them to understand relationships between any input variables. MC-Simulation provides information about what might happen in the future and which parameters are most critical. Hedging, early warning systems and keeping strategic options help to prevent inefficient scenarios and minimize risks. We implement the simulation project-specificly and adjusted to your requirements.

Real Options Analysis

ROA evaluates strategic options of investments and projects with methods of financial option theory. Real options and strategic opportunities can be crucial for success. In businesses with huge uncertainties and when NPV gives not a clear picture, real options are the key factors in evaluation. ROA gives instructions what to do in which situation. Important options are options to wait, expand, contract, choose, switch, abandon, … We also evaluate complex compound and rainbow options.