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"value analysis techniques"
- Thread starter beastboy
- Start date
beastboy said:
be
more
specific.
thanks.
Synpax
Well-known member
Fancy words for common sense. IE - value = future net cashflows.
http://www.npd-solutions.com/va.html
http://www.npd-solutions.com/va.html
Razorguns
Well-known member
Mathematicians shouldn't be businessmen!
I'd run if i ever met someone who can *prove* he can make tons of money on a product by showing me 20 pages of formulas and calculations.
The _value_ of a product is the reception of it by the client. If they don't want it -- the value is diminished or elminated.
Here's my formula:
-> product = Value++
-> product = Value--
-> product = Value * 0
hehe
I'd run if i ever met someone who can *prove* he can make tons of money on a product by showing me 20 pages of formulas and calculations.
The _value_ of a product is the reception of it by the client. If they don't want it -- the value is diminished or elminated.
Here's my formula:
-> product = Value++ -> product = Value-- -> product = Value * 0hehe
beastboy,
Specificity would help a little, but the answers you're getting here are embarrassing to this board.
We price a lot of different services to our clients all the time. We always look at upside and savings through process enhancement.
In other words, you spend X to achieve something. We will spend 75% of X, and charge you 90% of X, and keep the 15% spread.
Your result is Y when you do this, we can do Y + 25%, we'll split the upside 50-50.
Built into our analysis, but not shared at the time is other business processes we can impact. This potential impact is part of our value analysis, but we withhold it up front and sell it later.
Not every client can be impacted like this; we pick and choose and we reject many.
I don't know if this is helpful at all.
Specificity would help a little, but the answers you're getting here are embarrassing to this board.
We price a lot of different services to our clients all the time. We always look at upside and savings through process enhancement.
In other words, you spend X to achieve something. We will spend 75% of X, and charge you 90% of X, and keep the 15% spread.
Your result is Y when you do this, we can do Y + 25%, we'll split the upside 50-50.
Built into our analysis, but not shared at the time is other business processes we can impact. This potential impact is part of our value analysis, but we withhold it up front and sell it later.
Not every client can be impacted like this; we pick and choose and we reject many.
I don't know if this is helpful at all.
bran987 said:
beatboy's post was a little generic, so I had to answer in a generic fashion.
As to you, sir:
We are speaking fully in the abstract here...but suppose you had 5 pieces of knowledge that could make money for a client.
You come in and sell them #1 and #2. Everyone makes money. They like you. You show up with #3. They trust you, give you a chance, and a slightly bigger upside, since you made them money the first time. #3 is another home run.
They come to you and say "hey, what do you know about X?" Well, "X" is your #4. So you say, we can do X, but we need to price it as such (meaning, much more revenue for us).
Client: OK. As long as you can do "X", we'll pay you anything.
Us: great. and if we do X, give us a shot at Y...which just happens to be #5.
Client: If you solve X, we'll pay you whatever you want for Y.
Thus we go from 2 to 5, and 3--->4--->5 brings us closer to core activities, which, as a vendor, is nirvana.
http://www.prenhall.com/divisions/bp/app/cfldemo/CB/CapitalBudgeting.html
The above looked decent.
Valuation is certainly common sense - you want something positive or more is better than less. At it's most simple, you hand me $200 today and an instant later with absolute 100% certainty I give you $400 back. Return on investment is 100%, Present Value of the flow from me is $400 but net present value is $200 (subtract your initial $200). Of course, you factor in such things are risk in it's various forms, the timing of payment(s), and any cost of the original $200 to you and this is where the math comes in and no matter what someone says pegging that discount rate is problematic.
So that was NPV. IRR, internal rate of return, is basically taking known cash flows and just solving for the discount rate (generally there's a cutoff of acceptability and that cutoff is generally determined by risk and cost of capital - sort of backing into the discount rate issue of NPV but still no getting around quantifying an acceptable IRR). Then there's payback period which is next to useless other than determining how long it takes to get your original investment back but it's used.
This stuff is important to capital budgeting/decision making/project selection as well as investment (which in fact captial budgeting is). A bond is simply a stream of defined cash flows with certain risks (credit, exchange rate if foreign etc...). An equity investment or stock essentially is again a stream of future cash flows but can be much harder to define (infinite life/residual claim/growth rates) as some companies may not pay dividends currently or claim they never will (still, you could buy controlling ownership and force them to or liquidate them so it is still a stream of cash).
EDIT:
Ahh - and the math. Here's the reason. When you explain something to someone in English or verbal language a lot of the communication is predicated upon a common understanding of words etc... This is why two people tell you the same thing and one confuses you yet the other person is crystal clear (there are other factors too but you get the point). Anyway, for math, there is only one language. Mathmatical proofs and derrivations are concrete and able to be followed by everyone who has enough math knowledge. Now, I'm not someone who thinks like this but spend some time around academia or even a group of engineers and you'll find a number of people who like mathmatical explanations and try to explain something to you in the form of math (like a 20 minute derrivation of the R squared statistic in regression analysis rather than just saying "it's the % of variability that the model can explain" - I know someone who wanted to murder the professor over this one). It's a different way of thinking. Almost like at a point in learning people went down two different paths and process things differently. I'm certainly decent at math but my mind doesn't do things the way their's does. I spent a significant amount of time earning a degree at a heavy quant program and witnessed the dichotomy of thinking - I probably spent more time trying to grasp and understand this than I should have but it's very interesting. I wonder if anyone has pinned this down in psychology.
The above looked decent.
Valuation is certainly common sense - you want something positive or more is better than less. At it's most simple, you hand me $200 today and an instant later with absolute 100% certainty I give you $400 back. Return on investment is 100%, Present Value of the flow from me is $400 but net present value is $200 (subtract your initial $200). Of course, you factor in such things are risk in it's various forms, the timing of payment(s), and any cost of the original $200 to you and this is where the math comes in and no matter what someone says pegging that discount rate is problematic.
So that was NPV. IRR, internal rate of return, is basically taking known cash flows and just solving for the discount rate (generally there's a cutoff of acceptability and that cutoff is generally determined by risk and cost of capital - sort of backing into the discount rate issue of NPV but still no getting around quantifying an acceptable IRR). Then there's payback period which is next to useless other than determining how long it takes to get your original investment back but it's used.
This stuff is important to capital budgeting/decision making/project selection as well as investment (which in fact captial budgeting is). A bond is simply a stream of defined cash flows with certain risks (credit, exchange rate if foreign etc...). An equity investment or stock essentially is again a stream of future cash flows but can be much harder to define (infinite life/residual claim/growth rates) as some companies may not pay dividends currently or claim they never will (still, you could buy controlling ownership and force them to or liquidate them so it is still a stream of cash).
EDIT:
Ahh - and the math. Here's the reason. When you explain something to someone in English or verbal language a lot of the communication is predicated upon a common understanding of words etc... This is why two people tell you the same thing and one confuses you yet the other person is crystal clear (there are other factors too but you get the point). Anyway, for math, there is only one language. Mathmatical proofs and derrivations are concrete and able to be followed by everyone who has enough math knowledge. Now, I'm not someone who thinks like this but spend some time around academia or even a group of engineers and you'll find a number of people who like mathmatical explanations and try to explain something to you in the form of math (like a 20 minute derrivation of the R squared statistic in regression analysis rather than just saying "it's the % of variability that the model can explain" - I know someone who wanted to murder the professor over this one). It's a different way of thinking. Almost like at a point in learning people went down two different paths and process things differently. I'm certainly decent at math but my mind doesn't do things the way their's does. I spent a significant amount of time earning a degree at a heavy quant program and witnessed the dichotomy of thinking - I probably spent more time trying to grasp and understand this than I should have but it's very interesting. I wonder if anyone has pinned this down in psychology.
Last edited:
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