factors

scenariosDeveloping effective business cases is much easier than you think! You know that you need to identify the relevant factors, namely costs, benefits and risks, but how to you calculate the most probable net outcome of the investment?

The traditional approach is to assign values to the identified factors, and then subtract costs from benefits – followed by a risk analysis that attempts to explain how uncertain some of the assigned values might be.

Alternatively, you assign worst, best, and possibly most likely values, and make the corresponding calculations.

The problem with this traditional approach is that you still don’t know how probable any of the calculations are, and that makes a poor basis for making critical decisions!

Most likely, you enter your assigned values and formulas into a spreadsheet, and experiment with the values until you’re ready to enter your conclusions into your business case. In my experience, building a good model in a spreadsheet is tedious and time-consuming, and the resulting spreadsheet requires above-average spreadsheet skills to maintain, and is difficult to modify if you need to introduce new factors later.

I have adopted a more effective approach, inspired by Doug Hubbard’s Applied Information Economics method. The primary advantage over the traditional approach is that factors aren’t assigned one, two or three values, but a range that is then used to generate random values in a simulation.

Initially, I continued to use spreadsheets, but soon found them to be inadequate for the task. So I developed factors, which makes it easy to define costs and benefits, and estimate them in ranges, which is also how risks are elegantly incorporated into the model.

factors calculates multiple scenarios, and present them for your analysis. It also calculates each estimate’s significance, so you know where to start measuring to reduce uncertainty. Since all scenarios are equally probable, you need many to see if there are some results that appear more often than others

factors v1 is freeware because I don’t want a license fee to stand in your way to adopt this approach to developing effective business cases. Download it today and get started!

You are welcome to contact me in case you want my help with adopting a simulation-based approach to developing effective business cases. While I’m often working full-time on assignments, I regularly find time to facilitate 2-3 hour workshops focusing on cost/benefit/risk analysis and solution design, either visiting your office or using e-conference services.

Share on LinkedInShare on FacebookTweet about this on TwitterPin on PinterestEmail this to someone