Real options analysis:
Financial analysis based on the latest understanding of the
market and management behavior. Conventional analysis such as
Discounted Cash Flow (DCF), Net Present Value (NPV) and Decision
Tree Analysis (DTA) are special cases of a generalized valuation
methodology - Real Options Analysis (ROA). Conventional techniques
cannot be applied for valuation when outcomes
are uncertain and management flexibility exists to incorporate
newer information in the future.
The option value is typically different from NPV and DTA
because of the embedded options in a decision - such as option
to defer, abandon, expand, switch and alter strategies. Good
managers take these into account into their decision processes
implicitly. Finance so far has failed to provide a systematic framework
to good decision-making - linking strategy with operations -
and Real Options do just that.
Monte-Carlo simulation: A simulation technique
that allows combining various factors with probabilistic outcomes
to characterize the distribution of an end result. This is
especially useful when the number of factors affecting the
outcome is large. It allows modeling of complex problems with
relative ease. We use Monte Carlo simulation for solving
problems such as demand and capacity forecasting, process
optimization and real options analysis
Neural Nets: This
technique is useful when a large number of independent factors
affect an outcome in complex and non-linear fashion.
Multivariate and non-linear regressions can be used as
substitutes. Regressions have the advantage of being able to
demonstrate the individual factorial relationships. However,
neural nets are useful when relationships are non linear and
complex.
Value: The determination of how much something
is worth. If the item being valued is publicly traded, value
can be observed in the market. For most real assets, it is not
the case and we need to apply valuation techniques to impute
a value.
Enterprise Value: The value of an enterprise
(company). The value of the company is the sum of its products,
technologies, processes and IP. As such, we can determine a
value bottoms-up, i.e, by valuing all its constituent components.
If the company is publicly held, value can also be observed
in the market place. Sometimes, the observed value could differ
substantially from its intrinsic worth. This information can
be used by managers of the company to better allocate resources
and communicate with investors as well as fund managers to buy/sell
securities
Genetic algorithm:
Genetic algorithms are useful in maximizing or minimizing an
objective function within a set of constraints. These are
especially applicable when the relationships are non-linear
and/or discontinuous
Organizational diagnostics:
We break down the fundamental components of an organization -
Structure, people, incentives, products, processes,
technologies, intellectual properties, real properties etc. and
identify problems that may cause an overall loss of enterprise
value
|
