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The method to identify candidates to be re-considered for adoption used in the tool to support investment valuation

IP.com Disclosure Number: IPCOM000030799D
Original Publication Date: 2004-Aug-27
Included in the Prior Art Database: 2004-Aug-27
Document File: 4 page(s) / 77K

Publishing Venue

IBM

Abstract

Disclosed is a function of an investment evaluation tool. The purpose of the function is to extract investment projects which would be worth reconsideration from the group of “tentatively rejected projects”, in a decision-making process which is on the basis of two different evaluation criteria.

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The method to identify candidates to be re -considered for adoption used in the tool to support investment valuation

-Agenda- 1. Basic concept of the decision-making logic
2. Evaluation criteria

2-1. Expected benefit of investment

2-2. Definition of the investment evaluation criteria

2-3. Decision-making framework on the basis of two different criteria
3. Outline of the investment evaluation tool and process
4. Key point of invention

4-1. ISSUE; Simultaneous pursuit of subjective judgment and rationality in the decision-making framework which is on the basis of two different criteria. 4-2. SOLUTION; The method to extract investment projects which would be worth reconsideration from the group of "tentatively rejected projects". --------------------------------------------

1. Basic concept of the decision-making logic

The logic of investment decision-making described in this document assumes following situation.

Main objective of the investment evaluation is to maximize the benefit of investment ( or project portfolio )under budget constraint.

Since every single project is diverse in terms of purpose, property, and money amount, it is inefficient to prioritize projects mechanically by a single evaluation criterion.

There are a large number of investment projects to be evaluated all at once.

Therefore, this evaluation framework have to satisfy the requirements as described below.

Evaluate various aspects of expected benefit of various kinds of investment projects. Compare and prioritize various kinds of investment projects by all-purpose criteria. Treat a large number of investment projects effectively.

2. Evaluation criteria

2-1. Expected benefit of Investment

Main objective of the Investment evaluation is to adopt beneficial investment projects. Therefore, investment evaluation criteria should be based on "expected benefit".

The expected benefit can be divided into two effects, "Economic Effect" and "Non-Economic Effect".

Economic Effect.

If an investment project is expected to gain "economic return" (= increase of cash flow through sales growth, reduction of costs and working capital etc.), and its amount can be reasonably assessed, the investment project can be said to have "Economic Effect".

Non-Economic Effect "Non-Economic Effect" is a benefit that is essential for company's survival from the long-term standpoint, even though there is no economic return in the short-term. Non-Economic Effect can be classified broadly into two categories, "enhancement of competitive advantage" and "upgrading of business infrastructure". - Enhancement of Competitive Advantage

   Investments for enhancement of core functions in the business system, which is expected to realize middle- and long-term competitive advantage in the market. Example; Improve R&D capacity, quality of products and adaptability to changes in the market, etc. - Upgrading of Business Infrastructure

Investments to satisfy stakeholders' requirements, which is expected to ensure vari...