Datasheet Cetus Innovate Limited information@cetusinnovate.com www.cetusinnovate.

com 9 July 2008 Page 1 of 2

Business Case Development and Feasibility Assessment

With this systematic and disciplined approach, we are sure that all aspects are properly addressed That gives peace of mind to a manager (Government ministry)

Protecting a Valuable Investment

Strategic investment decisions cannot be left to chance. A disciplined approach from initial concept through to final plans leads to greater efficiencies and gains in project implementation and a shorter time to market. Total characterization of the business environment through the application of advanced modelling and analysis software tools is critical to the success of a project, from initial planning to construction and final operations.

Developing the Business Case

Many systems such as ERP, SCM, CRM and BI help organizations to organize their processes more efficiently and to improve their quality or management control. However, systems for project and product life-cycle management are better suited to development and engineering than to innovation and change management. Here we see increased complexity and time pressure for the development of markets, applications, technologies and organizations. Support is provided for innovation activities such as the recognition of the best idea, transformation of a business idea to a business concept and plan, development of a business (revenue) model and preparation of a business case. This creates efficiencies in the following areas: 1. Facilitation of plenary sessions that take an idea to a concept, then to a plan and finally to a validated business case As a workflow manager for regulation of innovation and new business processes.

Robust Investment Decisions

In today's highly competitive market, companies need to constantly optimise their planning, technologies, processes, products and services in order to create growth and competitive advantage. Robust decision-making requires a systematic and auditable pathway. Where we used to need 6-12 months to get the entire process from idea to plan to a business case, we now only need 2-3 months (Telecom company)

2.

Developing a Business Case with Innovation Management Suite

Ideation/Idea Management Organisational Modelling

Ideas
Business Modelling
SWOT analysis Technology disruption tests. Mind mapping (stakeholder analysis, stakeholder values, competitor analysis) Quality Function Deployment (value propositions, market segmentation, impact analysis, gap analysis)

Concept

Plan
Decision Modelling

Selection of concepts, ideas and projects (idea selection & technology readiness scans) Revenue modelling & assessment via NPV & Real Option Theory (cash flow, financial risk, Monte Carlo simulations, decision tree analysis, scenarios, & resources) Risk analysis Portfolio analysis Tracking & tracing

To Validated Business Case

From Initial Observations

Forms for describing and defining ideas Classification of ideas Judgment and selection of ideas Ranking and reporting of ideas Feedback of idea assessments Brainstorming Process opportunity analysis Generation of technology applications

Business process analysis and design (UML & IDEFO) Individual competencies analysis (Belbin) Organisational competencies analysis (Innovation Scorecard & Knowledge Management scans).

Datasheet Cetus Innovate Limited information@cetusinnovate.com www.cetusinnovate.com 9 July 2008 Page 2 of 2

Business Case Development and Feasibility Assessment

Several real options are embedded in investments and development projects: Abandon, Accelerate, Decelerate, Postpone, Defer, Expand, Contract

Financial Feasibility
Strategic investments need to be justified, prioritized and approved. A valuation model should not just quantify an investment but should identify the real value added by an investment. It should also encourage discussions between departments such as Research, Marketing and Production and Finance. This will identify, monitor and manage the most important value drivers during the investment process

Practical Implications
The management of investments and R&D-projects as a portfolio of real options and the use of real options as markets and technologies change becomes PROACTIVE! Risk seeking behaviour is rewarded. Higher uncertainty enhances management flexibility and real option value: high-risk projects are not discounted to the graveyard as with traditional NPV calculations.

The Value of Management Flexibility

Traditional Static Net Present Value (NPV) methods provide only a partial answer to valuation, because they neglect the value of managerial flexibility and assume that management behaves passively. Traditional NPV-methods do not value flexibility, which captures upside potential and limits downside losses. As a result all risks have a negative effect on value and therefore may lead to inaccurate valuations and incorrect strategic decisions!

Analyses
Analyses of value, risk and resources: Static/Dynamic NPV and Real Option Value Mean Cash flow and accumulated NPV Size of chance for certain minimal NPV Monte Carlo simulations Number and sort of Full Time Equivalents Financial risk analyses Decision tree analyses Sensitivity analysis: Critical factors in development and commercialisation activities. Scenario analysis: Best, worst and alternative case development and commercialisation.

Net Present Value Lessons Learned

Static NPV assumes that commercialization is mandatory after the investment independent of how the market develops. On the other hand, dynamic NPV takes into account management flexibility, based on how the market develops following development. Higher uncertainty results in higher flexibility.

Dynamic NPV
ProjectF ProjectA
NPV-Option value (Euro's) 6000000.00 5000000.00 4000000.00 3000000.00 2000000.00 1000000.00 0.00

NPV-Option value

Active Versus Passive Management

Value added by management flexibility

ProjectE

ProjectD

Probability

ProjectC

NPV
Defer or abandon the project to limit losses from adverse market developments

Real Option Value, ROV

ProjectB

ProjectB ProjectA ProjectC Project

ProjectD ProjectE

ProjectF

Payback time (weeks)

Consolidate aggressively to take advantage of favourable future opportunities.

Risk-payback-NPV
210.00 140.00 70.00 0.00 0 5000000 Risk (S.D.)

ProjectD ProjectE ProjectA ProjectF ProjectB ProjectC

10000000

Value Creation

Therefore the investment can be represented as an option on commercialization. If the market develops favourably the option should be exercised but if not, the option expires. Dynamic NPV is more consistent with actual management behaviour and therefore results in more realistic valuations and better decision-making!