assignment of business value

Business value and prioritization: What work should you do first?

• TJ Trujillo

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Agile brings with it the “prioritization of work” concept. This helps ensure teams complete work that is most important to the business first. However, while being able to demonstrate that the most important work is done first , prioritization alone doesn’t show the business value delivered by that work.

Definition of business value

I define business value as the combination of all economic, human and intangible forms of importance to the business . Human forms of value include employees, business partnerships and customers. Intangible forms include intellectual property, business model, etc. In an agile or scrum methodology, these all contribute the value attributed to each feature

Prioritization and estimation

Prioritization is the process of putting the card that is most important to the business ahead of the next most important card . In this way, the backlog reflects story cards in the order of importance (highest to lowest) as defined by the business.

You can best estimate business value at the feature or epic level. This ensures value across the entire work item. If you attribute business value to individual components, total value could be skewed. Interdependencies or work that follows could be easier than preceding work tasks, making it difficult to determine how to accurately distribute the value .

Application for product and business owners

Product and business owners can apply business value to the features and identify the most valuable work and the work scheduled to be completed first. As the business assigns teams a to the work with the most value, they are able to break the work down into smaller stories which are then prioritized. This delivers value sprint-by-sprint until the feature is complete.

Together, prioritization and business value help ensure the right work is done at the right time for the benefit of the company. Prioritization of stories gives the team direction on which pieces of a feature to address first. Assigning business value to features ensures the team will work on the feature that delivers the biggest value to the company.

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Calculating Business Value

Calculating business value and using that insight to prioritize the Product Backlog is one of the most important things an Product Owner can do to drive profits and achieve a competitive advantage using Scrum.

Estimated time for this course : 65 minutes Audience : Intermediate Suggested Prerequisites :  Product Owner , Product Backlog

Upon completion you will:

• Be able to explain the role business value plays in Scrum
• Understand five ways to calculate business value
• Know the math behind Net Present Value
• Learn the difference between urgent vs. important priorities.
• Know how to prioritize your Product Backlog to maximize revenue
• Qualify for PMI  PDUs . See  FAQ  for details

Business Value Overview:

Teams that overlook a disciplined approach to business value are leaving money on the table. Regardless of the Estimation technique used, business value should be an explicit consideration and assigned in consistent way. This will eliminate most disagreements about strategic decisions that rely on top-down decrees, intuition or luck. When business value is transparent, both  Leadership  and Team members can make informed decisions about how best to make the project a commercial success.

This online course details how Scrum Inc. calculates Business Value and uses it to inform our fiscal and strategic goals. Our quick but quantitative method will give you the practical knowledge you need to maximize the business value of your backlog.

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Sources of Business Value

• The source most people think of when assessing business value is  economic value . How many units can be sold? How much can be charged per unit? And how can costs be lowered? These are important fundamental questions that need to be answered before you determine whether or not a product is worth creating. However, market value is not the only thing to look at.
• Another important source of business value is the  mitigation of risk . Before launching a new project, a Product Owner should develop a number of hypotheses about the market and then test them systematically. Activities that test these hypotheses generate value to the project and company. This is especially important if you are  in the business of innovating.
• Testing technical assumptions  also creates business value. Does the organization really have all the knowledge and tools necessary to deliver the product? If not, is the project still lucrative enough to justify procuring the necessities to make it a reality?

And finally when assessing business value, the Product Owner should determine if completing a backlog item would expand the company’s capabilities. Will the staff develop new skills allowing them to expand the company’s product line? Will leaders improve internal processes that will make other parts of the company more effective? Will refactoring a section of code eliminate a large share of the bugs that consume valuable team energy and free them up for value creating development? All these are examples of business value creation through capability building.

Business Value Appears at the Feature Level

The Product Owner needs to determine how much effort an Epic will take and whether the organization has the resources to complete the project. We prioritize the backlog by return on investment (ROI), which is the business value we get in exchange for the effort/money invested to accomplish it. In Scrum, we often use the story points of an Epic as the measure of investment. Coordination with the finance department can also help this process substantially as they probably already have a defined method for evaluating ROI.

Ways to Estimate Business Value

Commonly used methods include (from fastest to most quantitative):

• Bubble Sort
• Planning Poker
• Break Even Analysis
• Return on Investment (ROI)
• Net Present Value (NPV)

Business value doesn’t have to be purely economic. Often a company is hoping to make an impact, or deliver on a social mission. The ability to accomplish these goals can also be defined as creating business value. Depending on what your company is hoping to accomplish one technique may be more helpful than another.

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How to Value a Company: 6 Methods and Examples

• 21 Apr 2017

Determining the fair market value of a company can be a complex task. There are many factors to consider, but it's an important financial skill businesses leaders need to succeed. So, how do finance professionals evaluate assets to identify one number?

Below is an exploration of some common financial terms and methods used to value businesses, and why some companies might be valued highly, despite being relatively small.

What Is Company Valuation?

Company valuation, also known as business valuation, is the process of assessing the total economic value of a business and its assets. During this process, all aspects of a business are evaluated to determine the current worth of an organization or department. The valuation process takes place for a variety of reasons, such as determining sale value and tax reporting.

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How to Valuate a Business

One way to calculate a business’s valuation is to subtract liabilities from assets. However, this simple method doesn’t always provide the full picture of a company’s value. This is why several other methods exist.

Here’s a look at six business valuation methods that provide insight into a company’s financial standing, including book value, discounted cash flow analysis, market capitalization, enterprise value, earnings, and the present value of a growing perpetuity formula.

1. Book Value

One of the most straightforward methods of valuing a company is to calculate its book value using information from its balance sheet . Due to the simplicity of this method, however, it’s notably unreliable.

To calculate book value, start by subtracting the company’s liabilities from its assets to determine owners’ equity. Then exclude any intangible assets. The figure you’re left with represents the value of any tangible assets the company owns.

As Harvard Business School Professor Mihir Desai mentions in the online course Leading with Finance , balance sheet figures can’t be equated with value due to historical cost accounting and the principle of conservatism. Relying on basic accounting metrics doesn't paint an accurate picture of a business’s true value.

2. Discounted Cash Flows

Another method of valuing a company is with discounted cash flows. This technique is highlighted in the Leading with Finance as the gold standard of valuation.

Discounted cash flow analysis is the process of estimating the value of a company or investment based on the money, or cash flows, it’s expected to generate in the future . Discounted cash flow analysis calculates the present value of future cash flows based on the discount rate and time period of analysis.

Discounted Cash Flow =

Terminal Cash Flow / (1 + Cost of Capital) # of Years in the Future

The benefit of discounted cash flow analysis is that it reflects a company’s ability to generate liquid assets. However, the challenge of this type of valuation is that its accuracy relies on the terminal value, which can vary depending on the assumptions you make about future growth and discount rates.

3. Market Capitalization

Market capitalization is one of the simplest measures of a publicly traded company's value. It’s calculated by multiplying the total number of shares by the current share price .

Market Capitalization = Share Price x Total Number of Shares

One of the shortcomings of market capitalization is that it only accounts for the value of equity, while most companies are financed by a combination of debt and equity.

In this case, debt represents investments by banks or bond investors in the future of the company; these liabilities are paid back with interest over time. Equity represents shareholders who own stock in the company and hold a claim to future profits.

Let's take a look at enterprise values—a more accurate measure of company value that takes these differing capital structures into account.

4. Enterprise Value

The enterprise value is calculated by combining a company's debt and equity and then subtracting the amount of cash not used to fund business operations.

Enterprise Value = Debt + Equity - Cash

To illustrate this, let’s take a look at three well-known car manufacturers: Tesla, Ford, and General Motors (GM).

In 2016, Tesla had a market capitalization of $50.5 billion. On top of that, its balance sheet showed liabilities of $17.5 billion. The company also had around $3.5 billion in cash in its accounts, giving Tesla an enterprise value of approximately $64.5 billion.

Ford had a market capitalization of $44.8 billion, outstanding liabilities of $208.7 billion, and a cash balance of $15.9 billion, leaving an enterprise value of approximately $237.6 billion.

Lastly, GM had a market capitalization of $51 billion, balance sheet liabilities of $177.8 billion, and a cash balance of $13 billion, leaving an enterprise value of approximately $215.8 billion.

While Tesla's market capitalization is higher than both Ford and GM, Tesla is also financed more from equity. In fact, 74 percent of Tesla’s assets have been financed with equity, while Ford and GM have capital structures that rely much more on debt. Nearly 18 percent of Ford's assets are financed with equity, and 22.3 percent of GM's.

When examining earnings, financial analysts don't like to look at the raw net income profitability of a company. It’s often manipulated in a lot of ways by the conventions of accounting, and some can even distort the true picture.

To start with, the tax policies of a country seem like a distraction from the actual success of a company. They can vary across countries or time, even if nothing actually changes in the company’s operational capabilities. Second, net income subtracts interest payments to debt holders, which can make organizations look more or less successful based solely on their capital structures. Given these considerations, both are added back to arrive at EBIT (Earnings Before Interest and Taxes), or “ operating earnings .”

In normal accounting, if a company purchases equipment or a building, it doesn't record that transaction all at once. The business instead charges itself an expense called depreciation over time. Amortization is the same thing as depreciation but for things like patents and intellectual property. In both instances, no actual money is spent on the expense.

In some ways, depreciation and amortization can make the earnings of a rapidly growing company look worse than a declining one. Behemoth brands, like Amazon and Tesla, are more susceptible to this distortion since they own several warehouses and factories that depreciate in value over time.

With an understanding of how to arrive at EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for each company, it’s easier to explore ratios.

According to the Capital IQ database , Tesla had an Enterprise Value to EBITDA ratio of 36x. Ford's is 15x, and GM's is 6x. But what do these ratios mean?

6. Present Value of a Growing Perpetuity Formula

One way to think about these ratios is as part of the growing perpetuity equation. A growing perpetuity is a kind of financial instrument that pays out a certain amount of money each year—which also grows annually. Imagine a stipend for retirement that needs to grow every year to match inflation. The growing perpetuity equation enables you to find out today’s value for that sort of financial instrument.

The value of a growing perpetuity is calculated by dividing cash flow by the cost of capital minus the growth rate.

Value of a Growing Perpetuity = Cash Flow / (Cost of Capital - Growth Rate)

So, if someone planning to retire wanted to receive $30,000 annually, forever, with a discount rate of 10 percent and an annual growth rate of two percent to cover expected inflation, they would need $375,000—the present value of that arrangement.

What does this have to do with companies? Imagine the EBITDA of a company as a growing perpetuity paid out every year to the organization’s capital holders. If a company can be thought of as a stream of cash flows that grow annually, and you know the discount rate (which is that company’s cost of capital), you can use this equation to quickly determine the company’s enterprise value.

To do this, you’ll need some algebra to convert your ratios. For example, if you take Tesla with an enterprise to EBITDA ratio of 36x, that means the enterprise value of Tesla is 36 times higher than its EBITDA.

If you look at the growing perpetuity formula and use EBITDA as the cash flow and enterprise value as what you’re trying to solve for in this equation, then you know that whatever you’re dividing EBITDA by is going to give you an answer that is 36 times the numerator.

To find the enterprise value to EBITDA ratio, use this formula: enterprise value equals EBITDA divided by one over ratio. Plug in the enterprise value and EBITDA values to solve for the ratio.

Enterprise Value = EBITDA / (1 / Ratio)

In other words, the denominator needs to be one thirty-sixth, or 2.8 percent. If you repeat this example with Ford, you would find a denominator of one-fifteenth, or 6.7 percent. For GM, it would be one-sixth, or 16.7 percent.

Plugging it back into the original equation, the percentage is equal to the cost of capital. You could then imagine that Tesla might have a cost of capital of 20 percent and a growth rate of 17.2 percent.

The ratio doesn't tell you exactly, but one thing it does highlight is that the market believes Tesla's future growth rate will be close to its cost of capital. Tesla's first quarter sales were 69 percent higher than this time last year.

The Power of Growth

In finance, growth is powerful. It explains why a smaller company like Tesla carries a high enterprise value. The market has taken notice that, while Tesla is much smaller today than Ford or GM in total enterprise value and revenues, that may not always be the case.

If you want to advance your understanding of financial concepts like company valuation, explore our six-week online course Leading with Finance and other finance and accounting courses to discover how you can develop the intuition to make better financial decisions.

This post was updated on April 22, 2022. It was originally published on April 21, 2017.

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Assign business value to your program increment objectives.

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Dave A. Cornelius, DM. KnolShare . Practice the Clear is Kind principle when assigning Business Value to your business objectives.

As the business landscape continues to shift, many organizations are involved in a digital transformation that is reshaping and evolving how a business operates. One popular business agility model used by Fortune 500, 100 and 50 companies is the Scaled Agile Framework (SAFe), which shapes the business lean-agile value delivery ways of working. One SAFe practice that supports business owners (BOs) and value delivery teams’ alignment is the BO assignment of business value (BV) to program increment (PI) objectives during the PI planning event that occurs every 10 weeks. According to Scaled Agile, Inc., “ Assigning business value during PI planning provides an essential face-to-face dialogue between the team and their most important stakeholders, the Business Owners.” The business value assignment uses a scale of 1 (lowest) to 10 (highest). The BV assignment is an opportunity for agile value delivery teams and BOs to better understand the business objectives and their value. Some BOs and other stakeholders have asked what the purpose of assigning BV to the PI objectives is.

The answer to the question is often framed with “because SAFe said so,” but it is important to get a deeper understanding. Team members benefit from knowing the business priorities and can make decisions without having to find busy BOs to make decisions. Ultimately, this can lead to increased speed to market. However, the principles of taking an economic view (#1) and decentralized decision-making (#9) are the most relevant to establish lean-agile thinking during the BV assignment to PI objectives event.

The meaning of BV values of 1 (lowest) to 10 (highest) is often unclear to business owners. The conversations between BOs are often unproductive and lead to frustration because of differing definitions of what 10 means or 1 means. The lack of clarity stems from which business value should be used. In Brené Brown’s book Dare to Lead: Brave Work. Tough Conversations. Whole Hearts , the main message is “Clear is kind—unclear is unkind.” BOs would be especially appreciative of the “clear is kind” experience. The BO is actually operating in a promise mindset that forecasts the promise of future value that is measurable, valuable and deliverable.

Practice ‘Clear Is Kind’

One way that you can practice clear is kind is by providing ways to increase alignment with the BOs, value delivery teams and other stakeholders at least a week before the PI planning event begins. First, start with the operational definition of value: “a measurable outcome that can be realized and shared.” Second, share that the BV assignment is a hypothesis and is a forecast of what value is possible in the future. Third, share a sample of possible BV definitions that can be used for conversations and alignment. The following example describes the BV descriptor guide that provides a definition of each business value item for a product delivery team to enable BOs to align and make decisions faster:

• (Low) Resolve a low-priority customer request
• Deliver MVP to validate customer interest or market viability
• Evaluate beta release with specific customer segment(s)
• Satisfy a compliance requirement
• (Medium) Improve customer experience by improving ease of use
• Improve system performance by 20%
• Improve system reliability by 20%
• Improve net promoter score (NPS) from passives (7-8) to promoters (9-10)
• Delight 60% of customer segments
• (High) Increase market share through a compelling solution

After the BO considers the example, work together to create a BV descriptor guide for the initiative. Other interested stakeholders may include product managers (PM), product owners (PO) and release train engineers (RTE). The co-creation is enabled through a facilitated workshop by an organization or agile coach to create the list of BV descriptors at least one week prior to the PI planning event.

Here are some examples of responses we received in a survey of 50 executives across five Fortune 100 and 500 companies:

• This speaks to me and adapts to the business we are in.

• This will help me think of the PI objectives differently.

• It has an expectation of what the feature will deliver, and I see the value it could bring when delivered.

• This will help our business owners align on common definitions for more productive conversations.

• This is a tool to increase understanding of whether an item is aligned with a vision, help in setting priorities and specify business value forecast.

Don’t Weaponize BV

One anti-pattern to avoid is the weaponization of BV. Even lean-agile practices can be used in ways that are not beneficial for the teams and leaders. The anti-pattern is delivery team members and leaders asserting that teams working on lower-ranked BV items are less capable than teams working on higher-ranked BV items. This is like comparing teams based on velocity (a.k.a. predictability) progress. My great-grandmother gave me the wisdom that no two horses run alike when I would try to compare myself with others.

Organization and agile coaching are the antidotes to this anti-pattern. We want to view each team as a whole and as capable of delivering value for the organization. The generative coaching mindset would reduce the fear, uncertainty and doubt, also known as the FUD factor. If leaders are focused on aligning strategy to execution, then the BV assignments are for relevant business values for the organization to realize and share.

Business owners can support the value delivery teams by giving meaning to BV items to provide guidance that enables the team to make trade-offs during the PI execution timeframe. There are also benefits to increasing alignment among the BO peers by applying the "clear is kind" principle, which removes systemic impediments. You need a shift in mindset to be open to learning and sharing that the BV items represent a hypothesis of the value to be delivered in the future. They do not have to go at this alone and can partner with an agile coach to reduce misalignment and the anti-pattern of diminishing value.

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Table of Contents

How do we assign business value to pi objectives, why do we assign business values to pi objectives, what problems have you seen with the business value assignment process, how do we assign business values to pi objectives, one features to one pi objective (normal), many features to one pi objective (normal), feature doesn't map to pi objective (normal), pi objective is not the result of a feature (normal), feature results in multiple pi objectives (rare), how do we work with pi objective business values during the program increment, want to know more.

There seems to be a lot of question the use of “business value” with PI Objectives, around the process of setting the value of PI Objectives, and how they are worked during the Program Increment. Let's look into this in more detail.

When people start with SAFe there is a lot of confusion around the need to assign a Business Value to the PI Objective. The thinking goes “we already understand the business value because we have the features - why not just use that?” In many ways this is the same kind of thinking process as “why do we establish sprint goals when we have users stories?” The problem with this type of thinking is that if you are not careful features and stories become a way of specifying fixed scope, do not allow learning as we go along, and set us up for blame game when things don't quite work out as expected (Business: “But the features says it has to do this!”; Team: “We thought it meant that and this is how we got there.”) To rectify this, we treat the features or story as a “wish” and the PI Objectives (and sprint goals) become a feedback loop to that the team provides to ensure there is common understanding. (See What is the Purpose of Sprint or Iteration Goals? for more information)

Having established the PI Objectives, we need to close the loop on communication, and we do this by having the business owner review the PI Objective, discuss their understanding of the PI Objective with the team, and assign a Business Value to that PI Objective based on that understanding. This process creates a “handshake” between the business and the team, with the PI Objectives in the team’s own words and the Business Value is the agreement from the business that the Plan makes sense to them.

In addition to closing this loop, there are two other primary uses of the Business Value that is assigned to the PI Objectives:

• It enables local decision making by the team. For example, if the team finds it has a choice to focus on one piece of work over another, their understanding of the value of the objectives will enable them to make that call quickly and locally. Or if the team discovers they are able to meet the PI Objective through a different path than expected (e.g. they have learned something which will allow them to shortcut the release of value) then there is no need to go back and “change scope”; the team is empowered to do this. For example, let’s imagine that the Team plans 2 Features that they think will fulfill a PI Objective. As they do the work the complete all of Feature 1 and half Feature 2 and they realize they have met the PI Objective. Instead of just following the plan, resulting in no additional value, the Team can maximize the work not done and get on to the next item.
• The commitment to deliver value is based on the PI Objectives. We can therefore use the Business Value to understand a team's ability to make and meet their commitments. The more a team is able to make and meet their commitments, the more likely stakeholders will trust the team, and so improve how they (team and stakeholders) collaborate over time. The Business Value can be used to create a metric which shows this ability.

In summary, “Why do we assign a Business Value?” To enable local decision making and to understand whether we are making and meeting commitments.

The general literature calls for the Business Owner to go from team to team during a PI Planning event, and assign values in the range of 10 (high value) to 1 (low value) on all the team's PI Objectives on a relative scale.

Sounds easy, doesn't it? But there seems to be a lot of different approaches to assigning Business Value to PI Objectives, the process seems to cause a lot of confusion, not to mention misunderstanding, and it often leads to people abandoning the process all together. Some problems I have seen, based on a particular approach to generating the Business Value include:

• The Business Owners have some kind of an absolution scale in their head for business value. Perhaps the “things that support this strategic initiative that is near and dear to my heart automatically get a 10”. What this means is that the team that is doing that “strategic” work automatically gets a number of 10's whereas all the other teams get 1's. Does this mean the work of the other teams is seriously less important that that 1 team? No matter how hard you try to explain otherwise, those teams with the lessor scores are not going to be motivated.
• The Business Owners wonder how they will “compare” the work of the different teams. They often feel like they do not have sufficient context to determine whether PI Objective 3 of Team 1 is more valuable than PI Objective 2 of Team 2. Let's face it, while there is a lot of value information around, the PI Objectives are seen for the first time by the Business Owners at the PI Planning event. This leaves the Business Owner in a pretty poor place - they feel like they are making arbitrary (and often indefensible) judgements based on limited information in front of a whole room of people. Is it any wonder that people question the basis and value of the Business Value?
• Whether because of the arbitrary nature of the process, or because of an approach where the Business Owner has an absolute scale in their heads, you will often see Business Values for a team become pretty undifferentiated - all 10's, or all 1's, or, because “I don't really know” all 5's. None of this adds value to the joint understanding of the work.
• The Business Owners confuse Business Value with WSJF prioritization. This process is not trying to recreate the prioritization of work. The way to think about this is to assume you will get all the PI Objectives (after all, they are all committed). Then ask yourself “which PI Objective gives me the most value”. As one person said “We have a whole bunch of cute puppies running around. We need to drown some of them.” — ok not a pretty picture but you get the idea.

How do we make the process smoother and more useful? One thing to note in the above “why” discussion is that the Business Value associated with a PI Objective is a team level discussion. The purpose is:

• Ensure common understanding of the commitment being made.
• Enable local decision making for the team.
• Allow us to create and track a metric which shows a team's ability to make and meet commitments.

What does this mean? It means we don’t really have to try to establish a Train / Program concept of Business Value but simply use a team-by-team approach. The approach I've found to work well is:

• Business Owner reviews a specific Team's PI Objectives
• Business Owner selects the most valuable of those PI Objectives and assigns it a value of 10.
• Business Owner selects the next most valuable PI Objective and determines “in comparison with that 10 valued PI Objective, this PI Objective is an X”.
• Repeat 3 until done.

This process allows us to have the discussions we need, while reducing the “arbitrariness” of the process, at the same time providing the data to use in the Program Increment:

• Teams can use the relative values to improve their (local) decision making processes.
• Teams can create the metric to show how they are making and meeting commitments. This is called the “predictability metric” and is percentage calculated by comparing the sum of the Business Values planned by the team in comparison to the sum of the Business Values actually delivered by the team.

Probably the biggest problem with the assignment of Business Value is when the PI Objectives do not clearly articulate the value, or is written in such a way that the business is not able to understand what is being done. It is therefore important that PI Objectives are “good” - see references below for more information.

Another problem that we sometimes see is when people confuse what they are providing. For example some people start to think “if I have PI Objective 1 as a 10, and PI Objective 2 as an 8, then this means that the 10 item will be worked first.” Business Value is a value, not a priority. It might be used to make prioritization decisions but it is not showing the priority of the work.

Note that as a side benefit, the train / program level metric for predictability percentage calculated by comparing the sum of the Business Values planned by the teams on the train in comparison to the sum of the Business Values actually delivered by the teams on the train. At both the team and program level the metric is presented as “are we making and meeting commitments to deliver value?”

In summary, “How do we assign Business Value?” Team by Team, where every Team has at least one PI Objective with Business Value of 10, and Business Values are relative to that for the team.

What is the Mapping Between Features and PI Objectives?

It often seems that when we go through a PI Planning event, that there is confusion as a result of developing PI Objectives and, in particular, how resultant PI Objectives relate to incoming Features. There are a number of standard patterns that you will see:

Characteristics:

• A PI Objective is directly the result of a Feature
• Feature complete means associated PI Objective is complete
• PI Objective wording is strongly related to the Feature Business Hypothesis and Acceptance Criteria
• It’s OK to achieve the PI Objective without completing the related Feature, especially if it means a better way of addressing the business need
• Recommend: PI Objective lists the Feature ID in the text e.g. (ID 2)
• Recommend: Feature description lists the PI Objective in the text e.g. (PI Objective 1)

• A PI Objective is the result of a multiple Features
• All Features are expected to be complete for the PI Objective to be complete
• PI Objective wording is a summary of the related to the Feature's Business Hypothesis and Acceptance Criteria
• It’s OK to achieve the PI Objective without completing the related Features, especially if it means a better way of addressing the business need
• Recommend: PI Objective lists the Feature ID in the text e.g. (ID 1, 3, N-1)
• Recommend: Feature description lists the PI Objective in the text e.g. (PI Objective 2)

• Some Features won’t be part of the PI Objectives for the Team
• Features are still expected to be completed, but the Feature is not differentiating in terms of the overall work of the Team
• Situation is normal because Features often represent KTLO, support, and other activities

• Some PI Objectives won’t be the result of a Feature for the Team
• PI Objective wording helps people not only understand what is to be done (the “what”) but also why it is important (the “so what”)
• PI Objective is still expected to be completed
• Situation is normal because some PI Objectives are internal to the Team such as Team improvement items

• A single Feature results in multiple PI Objectives
• Feature complete means associated PI Objectives are complete
• PI Objective wording is typically related to parts of the Feature Acceptance Criteria
• Situation is rare because usual practice is to split the Feature and do 1 to 1 relationship between Feature and PI Objective
• Recommend: PI Objective lists the Feature ID in the text e.g. (ID 1)
• Recommend: Feature description lists the PI Objective in the text e.g. (PI Objective 2, PI Objective 3, PI Objective 4)

At the end of the PI Planning event we have a set of business values. And and the end of this PI we would like to have a set of values that are updated to reflect the value of what was actually delivered so we can improve on our ability to deliver value. In other words the updated values are used to calculate the predictability metric and so is an input into the Inspect and Adapt).

One mistake a lot of Release Train Engineers make is to wait until the end of the Program Increment to gather up the values. The thinking is that we don’t want to waste a person's time (especially these senior Business Owner types) on updating these values so we should wait for the next big event.

As said, this is a mistake:

• The timing is such that the most time (say a quarter) has occurred between the initial commitment, the demonstration of value and the assignment of updated business values. Even with the best intention in the world, it is difficult to ask the Business Owner to remember all context that went into each of these steps especially when they are now being asked to update all the numbers at once.
• The teams will often feel slighted when, from their perspective suddenly a value is reduced when their numbers go down. While this might actually be valid (now that the delivery is seen, the value could be less than expected) it’s pretty hard on a team who then has no recourse to ask why there is a change and / or perhaps point out considerations the business owner is not seeing.
• The entire Train is wasting time while the business owner makes decisions about the value they are seeing. This seems like a poor trade-off of time - 1 or 2 business owners' time vs 100 people on the Train.
• The Train is constantly delivering value as represented by demonstrations of deliverable functionality. If we only get people to comment on value at the end of the PI this gives the false impression that value only is delivered at the end. We want to encourage discussions about delivering value continuously, not on some arbitrary time-box and so want to make sure everyone, especially senior people, know that value is always delivered.

A better approach is to have the business owner update the values as they are delivered. Typically as a result of a System Demonstration the business owner (or their proxies) will have seen the value provided. The team(s) are responsible for providing the link between the feature, the objectives and the work they have completed so there is a clear understanding of the value being provided.

If the Business Owner attends the System Demonstration, we could get an updated value by saying to the Business Owner “ … at PI Planning you said this was an 8. Now that you have seen it what do you think the value is?”

It is OK for the Business Owner to say “this is now valued a 7 (i.e. lower value) than we original thought.” Sometimes this is because the business situation changed. Or it might be that after having seen the capability it’s just not as useful as it was. Whatever the case, we need this data to figure out how we can improve. Is there something we could have done to improve our communication? Is there something we could have done to understand the change in business environment? The key thing to understand is that there is no blame assignment here; the Team did not somehow fail. It is just data and we might be able to learn something from it. Metrics like the Predictability will fluctuate based changes in the Team’s ability to deliver and the changing business environment. We use this data in the Inspect and Adapt to help drive improvements.

Sometimes we find that Business Owners say they do not have the time to attend a System Demo or that they need to wait on something else before providing the value. My feeling is that the RTE should set up a working agreement with the Business Owner where in the event that the Business Owner is unable to provide a value, the RTE will simply assign the value that was originally given. Like most working agreements of this type, the other side of the agreement will be that the RTE will work hard to show the value to the Business Owner so they can provide feedback. In general this is a bit of an anti-pattern (we want Business Owners involved as much as possible), but especially as you are establishing Trains in a new organization, it something that you will often see.

In summary, “How do we update the Business Value?” Incrementally, as the PI Objective is completed.

• How Do We Write Good PI Objectives
• What is the Purpose of Sprint or Iteration Goals? : While originally written from the perspective of Scrum Teams creating Sprint Goals, PI Objectives can be seen as Uber-Sprint Goals and so can provide additional background such as why we do PI Objectives at all and how these are different to features we are working as part of a PI Planning process.
• https://www.scaledagileframework.com/pi-objectives : Original write-up from SAFe
• http://www.yakyma.com/2013/02/the-17-truths-about-psi-objectives.html : Excellent write-up by Alex Yakyma discussing concepts and thinking behind PI Objectives
• I am indebted to Bernie Clarke who originally helped me think through the process.

What is Valuation?

Reasons for performing a valuation, 1. buying or selling a business, 2. strategic planning, 3. capital financing, 4. securities investing, company valuation approaches, method 1: dcf analysis.

• Method 2: comparable company analysis (“comps”)

Method 3: precedent transactions

Football field chart (summary), more valuation methods, additional resources, valuation overview.

The process of determining the present value of a company or an asset

Valuation refers to the process of determining the  present value of a company, investment or an asset. There are a number of common valuation techniques, as described below. Analysts who want to place a value on an asset normally look at the prospective future earning potential of that company or asset.

By trading a security on an exchange, sellers and buyers will dictate the market value of that  bond  or stock. However,  intrinsic value is a concept that refers to a security’s perceived value on the basis of future earnings or other attributes that are not related to a security’s market value. Therefore, the work of analysts when performing a valuation is to know if an investment or a company is undervalued or overvalued by the market.

Key Highlights

• Valuation is the process of determining the theoretically correct value of a company, investment, or asset, as opposed to its cost or current market value.
• Common reasons for performing a valuation are for M&A, strategic planning, capital financing, and investing in securities.
• The three most common investment valuation techniques are DCF analysis, comparable company analysis, and precedent transactions.

Valuation is an important exercise since it can help identify mispriced securities or determine what projects a company should invest. Some of the main reasons for performing a valuation are listed below.

Buyers and sellers will normally have a difference in the value of a business. Both parties would benefit from a valuation when making their ultimate decision on whether to buy or sell and at what price.

A company should only invest in projects that increase its net present value . Therefore, any investment decision is essentially a mini-valuation based on the likelihood of future profitability and value creation.

An objective valuation may be useful when negotiating with banks or any other potential investors for funding. Documentation of a company’s worth, and its ability to generate cash flow, enhances credibility to lenders and equity investors.

Investing in a security, such as a stock or a bond, is essentially a bet that the current market price of the security is not reflective of its intrinsic value . A valuation is necessary in determining that intrinsic value.

When valuing a company as a going concern, there are three main valuation techniques used by industry practitioners: (1) DCF analysis , (2) comparable company analysis, and (3) precedent transactions. These are the most common methods of valuation used in  investment banking , equity research, private equity, corporate development, mergers & acquisitions ( M&A ), leveraged buyouts ( LBO ), and most areas of finance.

As shown in the diagram above, when valuing a business or asset, there are three different approaches one can use. The asset approach calculates the fair market value of individual assets, often including the cost to build or cost to replace. The asset approach method is useful in valuing real estate, such as commercial property, new construction, or special-use properties. 

Next is the income approach, with the discounted cash flow (DCF) being the most common. A DCF is the most detailed and thorough approach to valuation modeling. 

The final approach is the market approach, which is a form of relative valuation and is frequently used in the finance industry. It includes comparable company analysis and precedent transactions analysis.

Discounted cash flow (DCF)  analysis is an  intrinsic value  approach where an analyst forecasts a business’s unlevered  free cash flow into the future and discounts it back to today at the firm’s weighted average cost of capital ( WACC ).

A DCF analysis is performed by  building a financial model  in Excel and requires an extensive amount of detail and analysis. It is the most detailed of the three approaches and requires the most estimates and assumptions. Therefore, the effort required to preparing a DCF model may also often result in the least accurate valuation due to the sheer number of inputs. However, a DCF model allows the analyst to forecast value based on different scenarios and even perform a sensitivity analysis.

For larger businesses, the DCF value is commonly a sum-of-the-parts analysis, where different business units are modeled individually and added together.

Method 2: comparable company analysis (“comps”)

Comparable company analysis  (also called “trading comps”) is a relative valuation method  in which you compare the current value of a business to other similar businesses by looking at trading multiples like P/E,  EV/EBITDA , or other multiples. 

The “comps” valuation method provides an observable value for the business, based on what other comparable companies are currently worth. Comps is the most widely used approach, as the multiples are easy to calculate and always current. The logic follows that if company X trades at a 10-times P/E ratio, and company Y has earnings of $2.50 per share, company Y’s stock must be worth $25.00 per share (assuming the companies have similar risk and return characteristics).

Precedent transactions analysis  is another form of relative valuation where you compare the company in question to other businesses that have recently been sold or acquired in the same industry. These transaction values include the take-over premium included in the price for which they were acquired.

The values represent the entire value of a business and not just a small stake. They are useful for M&A transactions but can easily become dated and no longer reflective of current market conditions as time passes.

Investment bankers will often put together a  football field chart  to summarize the range of values for a business based on the different valuation methods used. Below is an example of a football field graph, which is typically included in an  investment banking pitch book .

As you can see, the graph summarizes the company’s 52-week trading range (it’s stock price, assuming it’s public), the range of prices equity research analysts have for the stock, the range of values from comparable valuation modeling, the range from precedent transaction analysis, and finally the DCF valuation method. The orange dotted line in the middle represents the average valuation from all the methods.

Another valuation method for a company that is a going concern is called the  ability-to-pay analysis . This approach looks at the maximum price an acquirer can pay for a business while still hitting some target. For example, if a private equity  firm needs to hit a  hurdle rate  of 30%, what is the maximum price it can pay for the business?

If the company does not continue to operate, then a  liquidation value  will be estimated based on breaking up and selling the company’s assets. This value is usually very discounted as it assumes the assets will be sold as quickly as possible to any buyer.

DCF Terminal Value

Valuation Drivers

Selecting a Banker: Beauty Contest / Bake-Off

Economic Value Added Template

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• Corporate Finance
• Financial Analysis

Valuing a Company: Business Valuation Defined With 6 Methods

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What Is a Business Valuation?

• How It Works

Methods of Valuation

• Business Valuation FAQs

The Bottom Line

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

• Valuing a Company: Business Valuation Defined With 6 Methods CURRENT ARTICLE
• Valuation Analysis
• Financial Statements
• Balance Sheet
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• 6 Basic Financial Ratios
• 5 Must-Have Metrics for Value Investors
• Earnings Per Share (EPS)
• Price-to-Earnings Ratio (P/E Ratio)
• Price-To-Book Ratio (P/B Ratio)
• Price/Earnings-to-Growth (PEG Ratio)
• Fundamental Analysis
• Absolute Value
• Relative Valuation
• Intrinsic Value of a Stock
• Intrinsic Value vs. Current Market Value
• Equity Valuation: The Comparables Approach
• 4 Basic Elements of Stock Value
• How to Become Your Own Stock Analyst
• Due Diligence in 10 Easy Steps
• Determining the Value of a Preferred Stock
• Qualitative Analysis
• Stock Valuation Methods
• Bottom-Up Investing
• Ratio Analysis
• What Book Value Means to Investors
• Liquidation Value
• Market Capitalization
• Discounted Cash Flow (DCF)
• Enterprise Value (EV)
• How to Use Enterprise Value to Compare Companies
• How to Analyze Corporate Profit Margins
• Return on Equity (ROE)
• Decoding DuPont Analysis
• How to Value Private Companies
• Valuing Startup Ventures

A business valuation, also known as a company valuation, is the process of determining the economic value of a business. During the valuation process , all areas of a business are analyzed to determine its worth and the worth of its departments or units.

A business valuation is often used during the process of negotiating a merger or acquistion of one company by another, though it may be used in other situations as well. Owners will often turn to professional business evaluators for an objective estimate of the value of the business.

Key Takeaways

• Business valuation determines the economic value of a business or business unit.
• Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, taxation, and even divorce proceedings.
• Business valuation methods include looking at market cap, earnings multipliers, or book value, among others.

Investopedia / Katie Kerpel

How Business Valuation Works

The valuation of a business is the process of determining the current worth of a business , using objective measures, and evaluating all aspects of the business. Business valuation is typically conducted when a company is looking to sell all or a portion of its operations. It is also used during a merger or acquisition of one company by another, as well as when establishing partner ownership, for taxation, and even as a part of divorce proceedings.

A business valuation might include an analysis of the company's:

• Capital structure
• Future earnings prospects 
• Market value

The tools used for valuation can vary among evaluators, businesses, and industries. Common approaches to business valuation include a review of financial statements and discounted cash flow models.

Valuation is also important for tax reporting. The Internal Revenue Service (IRS) requires that a business is valued based on its fair market value. Some tax-related events such as the sale, purchase, or gifting of shares of a company will be taxed depending on valuation.

Estimating the fair value of a business is both an art and a science. Choosing the right method and appropriate inputs can be subjective or vary based on industry standards. Valuation can also involve intangible elements of a company's value, such as goodwill .

There are numerous ways a company can be valued . Each provides a different way of looking at a company's value, and no method is inherently more correct than another.

1. Market Capitalization

Market capitalization is the simplest method of business valuation. It is calculated by multiplying the company’s share price by its total number of shares outstanding. For example, as of Aug. 9, 2024, Microsoft Inc. traded at $406.02 . With a total number of shares outstanding of 7.43 billion, the company could then be valued at $406.02 x 7.43 billion, or about $3 trillion.

Market capitalization doesn't account for debt the company owes that any acquiring company would have to pay off, or cash on hand that would offset that debt. For that, you would need to calculate the company's enterprise value .

2. Times Revenue Method

Under the times revenue business valuation method, a stream of revenues generated over a certain period of time is applied to a multiplier which depends on the industry and economic environment. For example, a tech company may be valued at 3x revenue, while a service firm may be valued at 0.5x revenue.

3. Earnings Multiplier

Instead of the times revenue method, the earnings multiplier may be used to get a more accurate picture of the real value of a company, since a company’s profits are a more reliable indicator of its financial success than sales revenue is. The earnings multiplier adjusts future profits against cash flow that could be invested at the current interest rate over the same period of time. In other words, it adjusts the current P/E ratio to account for current interest rates.

4. Discounted Cash Flow (DCF) Method

The DCF method of business valuation is similar to the earnings multiplier. This method is based on projections of future cash flows, which are adjusted to get the current market value of the company. The main difference between the discounted cash flow method and the profit multiplier method is that it takes inflation into consideration to calculate the present value.

5. Book Value

This is the value of shareholders’ equity of a business as shown on the balance sheet statement. The book value is derived by subtracting the total liabilities of a company from its total assets.

6. Liquidation Value

Liquidation value is the net cash that a business will receive if its assets were liquidated and liabilities were paid off today.

There are many ways to value a company, and industries will have different standards that they use. Other options include replacement value, breakup value, and asset-based valuation .

What Is Market Capitalization?

Market capitalization, sometimes referred to as market cap, represents the total market value of all of a company's shares. This value isn't fixed; it will fluctuate as the price of shares rises and falls and will depend on how many outstanding shares a company currently has. It is found by multiplying the number of outstanding shares by the price per share.

What Does Business Valuation Tell You?

Business valuation tells you the dollar value of a company, which is usually determined by a combination of its assets, liabilities, earnings, potential future earnings, and market capitalization. It often represents what a buyer would need to pay to purchase the company outright, though it is not only used for mergers or acquisitions.

What Does Accredited In Business Valuation Mean?

In the U.S., Accredited in Business Valuation (ABV) is a professional designation awarded to accountants such as CPAs who specialize in calculating the value of businesses. The certification is overseen by the American Institute of Certified Public Accountants (AICPA). Candidates must complete an application process, pass an exam, meet minimum Business Experience and Education requirements, and pay a credential fee (as of 2024, the annual fee for the ABV Credential was $350).

In Canada, Chartered Business Valuator (CBV) is a professional designation for business valuation specialists . It is offered by the CBV Institute, as known as the Canadian Institute of Chartered Business Valuators.

A company valuation, or business valuation, is the practice of calculating an objective dollar value for a business or concern. To establish a company valuation, experts will examine its assets and liabilities, cash flows, earnings, or other metrics in order to determine the company's market value.

Business valuation is often found as part of a merger or acquisition. However, it can also be used by investors or for tax purposes. There are many different ways to value a company, so there is no single number that accurately represents a company's exact value.

Internal Revenue Service. " Sale of a Business ."

Yahoo Finance. " Microsoft Corporation (MSFT): Historical Data ."

Yahoo Finance. " Microsoft Corporation (MSFT): Statistics ."

Association of International Certified Professional Accountants. " Distinguish Yourself. Obtain the Accredited in Business Valuation (ABV) Credential ."

Association of International Certified Professional Accountants. " AICPA Annual Membership Dues ."

CBV Institute. " About CBV Institute ."

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Mon, Jun 5, 2017

Business Valuation - The Basics

Paul Barnes

A business valuation  requires a working knowledge of a variety of factors, and professional judgment and experience. This includes recognizing the purpose of the valuation, the value drivers impacting the subject company, and an understanding of industry, competitive and economic factors, as well as the selection and application of the appropriate valuation approach(es) and method(s). Some of the more important considerations are discussed below.

What is the purpose of the valuation? Identifying the purpose of the business valuation is a critical first step in the process as it dictates the “basis of value” or “standard of value” to be applied, which, in turn, impacts the selection of approaches, inputs and assumptions considered in the valuation. The purpose of a valuation could be for acquisition or sale, litigation, taxation , insolvency , or financial reporting , to name just a few. Once the purpose is identified, the appropriate standard of value can be applied. For example, a tax valuation for U.S. tax reporting generally requires fair market value, defined by U.S. tax regulations and further interpreted by case law while financial reporting requires fair value as defined by U.S. and IFRS accounting standards as a basis of value. While all valuations, regardless of purpose, share certain common attributes, there are differences that need to be reflected in the analysis pursuant to the basis of value. These differences can have a significant impact on the outcome of the business valuation.

What basis of value should apply? The basis of value (or simply put, value to whom?) describes the type of value being measured and considers the perspectives of the parties to the assumed transaction. For example, the basis of value may be defined as the value between a willing buyer and a willing seller or as the investment value to the current owner. Thus, the basis of value may have a significant impact on the selection of valuation approach(es), method(s), inputs and assumptions. It is often specified by a statute, regulation, standard, contract or other document, pursuant to which the valuation is performed. Therefore, the purpose of the valuation and the applicable basis of value are linked.

What premise of value should be used? The valuation approach(es), inputs and assumptions applied are highly dependent on the selected premise of value. The premise of value is driven by the purpose of the valuation and basis of value used, and generally falls into the following categories:

• A going concern premise is the most common premise of value; it presumes the continued use of the assets, and that the company would continue to operate as a business.
• An orderly or forced liquidation premise incorporates an in-exchange assumption (i.e., the assets are operated or sold individually or as a group, not as part of the existing business).

What is the subject of the valuation? The subject of the valuation is of vital importance to the valuation process, the selection of inputs and approach(es) and method(s). Valuing the invested capital or common equity of a business, options, hybrid securities, or some other form of financial interests in a business each require the application of specific valuation methods (a.k.a. techniques, all falling under three main valuation approaches), that are tailored to reflect their specific attributes and terms. Additional complexities arise when one valuation may be required as an input to perform another. For instance, a business valuation may serve as an input or a distinct step in the valuation of stock options, preferred stock, or debt. A business interest (ownership interest in a business), on the other hand, may be characterized by various rights and preferences such as voting rights, liquidation preferences, redemption provisions, and restrictions on transfer, each having an impact on the value measurement.

How has the business performed historically? Regardless of the business valuation approach applied, an understanding of the company’s history and evolution, management and ownership structure, and financial measures of historical performance, is imperative. Financial ratio, margin and growth analysis - the nature of which may vary across industry sectors - provide requisite insight into historical performance. Industry benchmarks offer a frame of reference to evaluate the subject company’s performance relative to its peer group. For example:

• The ratio of enterprise value to the historic amount of invested capital provides an indication of the market’s perception of the ability of the guideline companies to create value. 
• Measures such as return on invested capital (ROIC) and an evaluation of competitive advantages, including unique or innovative products, offer insight into how value is being created in the industry, and present benchmarks to assess the performance of the subject company.

Analyses of historical performance also require careful consideration of additional items and factors, such as non-operating assets and non-recurring events. Businesses are generally valued by first estimating the value of the operations and then adding any non-operating assets. Therefore, isolating and valuing the non-operating assets is important, especially when they are material. Non-recurring events should be removed from historical performance in order to get a more representative measure of the indicated future value of operations.

What is the future outlook for the business? While the historical analyses described above are a key consideration, so are a company’s future prospects. After all, a business derives its value primarily through its ability to create value in the future. In simple terms, value is created when management invests available capital in a manner that provides returns in excess of the cost of that capital. When investment returns equal the cost of capital, no value is created, and when returns fall below the cost of capital, value is eroded.

An assessment of a company’s future outlook comprises understanding the company’s continued strategy in managing its current operations and the expected performance of its future investments. This may include the evaluation of detailed forecasts, revenue, volume and market share data, operating expenses, taxes, capital requirements, cost of capital, etc., and various scenarios thereof. Industry and guideline company analyses also provide insight into a company’s expected performance and future value creation, on a more macro level.

Understanding management’s expectations for the ongoing value creation process; whether it would be built upon continuing successes of the past or through new strategic directions; and whether it is to be generated organically or through acquisitions, is critical in evaluating the future outlook of the business. Business expectations that deviate significantly from prior performance should trigger an incremental level of scrutiny in the analysis due to the lack of historical reference points.

Which valuation approaches should be utilized? With all this foundational information and the assumptions in place, the analysis turns to the selection of valuation approach(es). The income, market and cost approaches are the three generally accepted valuation approaches. The selection of valuation approach(es) depends on the facts and circumstances of the subject company. A brief summary of each approach follows.

Income Approach: The income approach converts future cash flows into a single present (discounted) amount, while reflecting current expectations about such future cash flows.

The discounted cash flow (“DCF”) is the most recognized method under the income approach. In very broad terms, the DCF method captures the operating value of a business in two primary components: (1) the present value of projected cash flows over the discrete projection period, and (2) the present value of the cash flows beyond the discrete projection period, reflected in a residual (terminal, or continuing) value calculation. A DCF may be applied to estimate enterprise value through the present value of cash flows available to all investors (e.g. debt-free cash flows), or to directly measure the value of equity by discounting equity-level cash flows.

A number of additional issues come into play when applying the DCF method, including understanding the underlying nature of the cash flow projections (e.g. a single most likely case vs. a weighted average of various scenarios, or expected cash flows); assessment of the continuing value beyond the discrete projection horizon; and selection of a discount rate (cost of capital) consistent with the nature and risk of the projections.

In addition to the DCF method, there are other methods or techniques categorized as methods under the income approach such as Monte Carlo simulation, contingent claims analysis, discounted economic profit, and real options analysis, which are applied when appropriate.

Market Approach: The market approach uses prices and other relevant information generated by market transactions involving identical or comparable (similar) companies or assets to benchmark the value of the subject business or business interest.

Two market approach methods commonly utilized in a business valuation are the Guideline Company method and the Guideline Transaction method, both of which provide indications of the value of a business by applying various ratios of value (e.g., enterprise value, equity value, price per share) to financial metrics (e.g. earnings before interest expense, depreciation and amortization “EBITDA”, after-tax earnings, revenue) or nonfinancial parameters (e.g. number of subscribers) derived from publicly traded companies or market transactions.

Comparability between the subject company and the guideline companies or transactions is paramount when applying the market approach, as is the selection of the appropriate type of multiple(s), the selection of the appropriate range of observed multiples, and the manner in which they are applied to the subject company. Furthermore, a valuation would consider potential adjustments to the multiples, including adjustments for non-operating assets, unfunded pension liabilities, and operating leases, as well as growth (e.g. price/earnings growth ratios, or PEG). Identifying guideline companies or transactions, adjusting the financial statements of the peer group, and deriving relevant multiples requires an understanding of the history and outlook of both the guideline companies and the subject company.

Additionally, analyzing prior transactions or offers for shares of the subject company, if any, is another form of the application of the market approach.

Cost Approach: The cost approach reflects the amount that would be required currently to replace the service capacity of an asset.

Thus, many associate the cost approach with the replacement cost method which is more appropriate to apply to an individual asset rather than a business. However, a cost approach may be of use for early stage or start-up companies where comparisons to guideline companies are unreliable, or projections are so subjective that they cannot be reliably estimated. Also, entrepreneurs often think of the value of their business in terms of the investment that would be required to replace the assets they have assembled.

The adjusted net assets method (also known by other names) can also be applied to value a business under certain circumstances. This method derives the value of the overall business by estimating the value of the underlying assets and liabilities comprising the business (tangible and intangible assets, whether recorded on the balance sheet or not), whereby each of the component assets and liabilities would be valued under the cost, market or income approach(es), as appropriate.

In a valuation analysis, the valuation approach(es) and method(s) most appropriate in the circumstances would be applied, considering the availability of relevant data.

How do you arrive at a conclusion of value? The resulting value indications from the approaches and methods applied would be evaluated and weighted, on a qualitative basis, as appropriate. In many cases, a greater weight may be ascribed to a particular approach. For example, when the guideline companies are not truly comparable to the subject company, a greater weight may likely be placed on the indication of the income approach. However, this should not preclude consideration of the market approach altogether, as it can still serve as a reasonableness check of the valuation conclusion.

If the valuation is for a business interest (for example, a minority, or non-controlling ownership interest in the business), additional adjustments for lack of control and/or lack of liquidity or restrictions on marketability may be required, depending on the facts and circumstances, and the specific rights of the holders of the class of equity interest.

As you can see, the valuation of a business or a business interest is often a complex process involving a number of considerations, ranging from defining the purpose of the valuation, the basis and premise of value used, the historical performance and future outlook for the subject of the valuation. While standard valuation approaches exist, the challenges lie in selecting the appropriate approach(es), developing the inputs, appropriately weighting the value conclusions, and making any adjustments, using judgement. While valuation appears to be entirely quantitative, the reality is that significant consideration is also given to all relevant qualitative factors, and that professional judgment is critical.

Duff & Phelps is a recognized thought leader on calculating cost of capital, and publishes a number of books and related materials on the topic.

Our valuation experts provide valuation services for financial reporting, tax, investment and risk management purposes.

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It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong. —Thomas Sowell, “ Wake up, p arents!” [1]

Business Owners

Business Owners (BOs) are key ART stakeholders who have the primary business and technical responsibility for return on investment (ROI), governance, and compliance.

Business Owners are critical stakeholders who evaluate fitness for use and actively participate in Agile Release Train (ART) events and solution development.

Self-managing, self-organizing  Agile Teams and ARTs are essential to the success of SAFe. This Lean-Agile way of working represents a significant change in the traditional management mindset. Leaders and management no longer need to supervise work directly or assign tasks. Instead, they lead and provide intent by establishing a mission and Vision .

Business Owners may help teams with coaching and skills development but essentially decentralize execution authority to the ART. However, transformation to a Lean-Agile way of working does not relieve leaders and management of their ultimate responsibilities. They remain accountable for the organization’s growth and its people, operational excellence, and business outcomes. SAFe defines the role of BOs as the key leaders who guide ARTs to optimal business outcomes.

Questions to identify Business Owners include:

• Who is ultimately responsible for business outcomes?
• Who can steer this ART to develop the right solutions?
• Who can speak to the technical competence of the solution now and in the future?
• Who should participate in planning, help eliminate impediments, and speak on behalf of development, the business, and the customer?
• Who can approve and defend a set of PI plans, knowing they will never satisfy everyone?
• Who can help ARTs coordinate efforts with other departments and organizations, spanning organizational boundaries?

The answers to these questions will help identify the BOs who will play a vital role in the ART’s ability to deliver value. Also, consider the availability of these leaders and their personal traits. Will they be an excellent Lean-Agile leader ? Are they interested in fulfilling this role?

It’s best to start with the smallest possible Business Owner team and then add members if it becomes clear that someone with the necessary accountability, skill, knowledge, or expertise is missing. Ensure a good mix of both business-oriented and technical people. It’s a reasonable expectation that membership in the BO team will change as needs dictate.

Responsibilities

An effective Business Owner is active and involved, fulfilling their SAFe responsibilities daily, as illustrated in Figure 1.

While there is no precise guideline about who should be part of the Business Owner team, they often have the following roles or titles:

• General or line of business manager
• Product or Solution Managers
• Enterprise Architects
• C-level executives
• Operations executives
• Senior engineering leaders
• Customers (for bespoke solutions)

The following sections describe the Business Owner’s duties, enabling them to fulfill their obligations while empowering Agile Teams and trains to do their best work.

Leading by Example

Business Owners are Lean-Agile Leaders who share accountability for the business value delivered by a specific ART. The most important and effective technique for driving the cultural change needed for the adoption of SAFe is for leaders to internalize and model the behaviors and mindsets of Business Agility . Such leaders inspire others to follow in their direction and to incorporate the leader’s example into their development journey. To accomplish this, Business Owners:

• Serve as an example of the new behaviors – Live by the Lean-Agile principles and practices, modeling the new norms of expected behaviors for the ART and others to follow. They help address shortcomings in SAFe knowledge and experience.
• Communicate the vision for SAFe adoption – Frequently communicate the business need, urgency, and vision for change. BOs participate in developing the SAFe implementation plan, prioritizing the transformation backlog, and establishing the metrics for tracking the change progress for one or more ARTs.
• Actively engage with the Lean-Agile Center of Excellence (LACE) – Address problems that teams cannot resolve. Such issues are often beyond the span of control of the LACE. For example, they may require facility changes, funding, hiring, and purchasing authority.
• Address the concerns of people who resist the change – Exhibit empathy and compassion, address people’s fears and worries, and resolve problems quickly and effectively to help overcome the resistance that may block the change.
• Act as change agents – Communicate passionately, sincerely believe, and illustrate their commitment to the future change vision. When people see leaders’ behaviors modeling those required by change, they become change advocates, aligning with the new behaviors more quickly. BOs do not tolerate unacceptable behavior and inspire those who resist or fear the change with mission and vision. BOs help people understand the new way of working and how it will benefit them, other ART members, and the organization. These leaders assure people by committing to adapting roles, practices, and processes for the overall good of the organization and ART.

A lack of psychological safety at work can have significant business consequences. When people don’t feel comfortable talking about things that aren’t working, the organization is not equipped to prevent failure. After all, no one can fix a secret. This fear often leads to disengaged employees and the opportunity cost to leverage the strengths of all its talent. People need to feel comfortable speaking up, asking naive questions, experimenting and failing with new ways of working, and disagreeing with changes to create and implement ideas that make a real difference.

In contrast, when employees are engaged, they adopt the organization’s vision, values, and purpose. They become passionate contributors, innovating problem solvers, and dependable colleagues.

Engaging with LPM

While Lean Portfolio Management (LPM) is operated by executives responsible for business outcomes, Business Owners are often critically engaged in the process. Some Business Owners may serve as LPM executives, but most are involved to some extent in activities such as:

• Strategy and Investment Funding – Help ensure the portfolio and individual value streams are aligned and funded to create and maintain the solutions needed to meet business targets.
• Agile Portfolio Operations – Business owners are responsible for helping value streams and ARTs’ get the right thing out the door’ to their customers. They may also directly or indirectly support the LACE and foster Communities of Practice (CoPs) within their domain of concern.
• Lean Governance – Business Owners are directly engaged in ART backlog prioritization and value stream economics. They also help provide oversight and decision-making of spending, audit, compliance, forecasting expenses, and measurement for their value streams.
• Occasionally serve as  Epic Owners – On occasion, Business Owners may serve as initial Epic owners for initiatives that benefit from their domain knowledge, experience, and authority.
• Participatory Budgeting – Business Owners actively assist LPM in allocating the total portfolio budget to its value streams.

Aligning Priorities and PI Planning

Business Owners are responsible for understanding and refining the Strategic Themes that influence ARTs. They have knowledge of the current  Enterprise ,  Portfolio , and  Value Stream context, and they’re involved in driving or reviewing the solution vision and Roadmap . The continuous involvement of BOs during the PI serves as a critical Guardrail for the ART’s budgetary spending. Aligning priorities and PI planning usually involve the following activities:

The time before PI planning is a busy period for Business Owners. Responsibilities include:

• Provide input to backlog   refinement – Participate in activities to align the backlog with the portfolio’s strategic themes
• Ensure that business objectives are understood – Ensure that the business objectives are agreed to by key stakeholders of the train, including the Release Train Engineer (RTE) ,  Product Management ,  System Architects , and other BOs
• Prepare to communicate the business context – Prepare to describe the business’s current state, the Portfolio Vision , and their perspective on how effectively existing solutions address current customer needs

The importance of the Business Owner’s role during PI planning cannot be overstated. Activities include:

• Present the business context and Vision – Share the business context during the defined PI planning agenda timebox. This context may include the state of the business, market rhythms, milestones, and significant external dependencies, such as those of Suppliers .
• Actively engage during critical ART PI planning activities – Participate in draft plan reviews, assign business value to team PI objectives, and approve final plans.
• Review draft and final plans – Understand the bigger picture and determine if the team’s objectives fulfill the current business objectives when taken together. They ask powerful questions and ensure alignment on solution intent.
• Watch for significant external commitments and dependencies – Foster the management of dependencies and support their reduction or elimination.
• Actively circulate during planning – Communicate business priorities to the teams and maintain agreement and alignment among the stakeholders regarding the key objectives of the train.
• Participate in the management review and problem-solving – Business Owners are critical stakeholders in this problem-solving meeting. They review and adjust the scope, resolve problems, and compromise as necessary.
• Participate in Solution Train planning – If applicable, BOs participate in Pre-Planning , helping ARTs adjust their plans and providing support during the Coordinate and Deliver activities.

Moreover, when Business Owners assign planned business value during PI planning, it offers an essential face-to-face dialogue between teams and their most important stakeholders, the BOs. This activity is an opportunity to develop personal relationships between Agile Teams and BOs, identify common concerns that require mutual commitment, and better understand the business objectives and their value. Figure 2 provides an example of one team’s PI objectives and the Business Value (BV) assigned by BOs.

Business Owners use a scale of 1 (lowest) to 10 (highest) and will typically assign the highest values to the customer-facing objectives. However, they should also seek the advice of technical experts who know that architecture and other concerns will increase the team’s velocity in producing future business value. So placing suitable business value on Enablers helps drive velocity and demonstrates their commitment to addressing the team’s legitimate technical challenges.

SAFe customers often ask, why doesn’t the BV use Fibonacci numbers? The answer is simple: the 10 to 1 scale is a range of numbers everyone understands, reducing friction and miscommunication between business-oriented BOs, technical members, and ART stakeholders. The simplest way to start is to assign a 10 to the highest individual objectives, typically ‘fixed’ commitments or must-have items, and then scale down from there. Giving many PI objectives a 10 (for one team) indicates a lack of objective prioritization. It effectively abrogates prioritization to the team without the benefit of the BO’s knowledge and experience.

Realizing Business Outcomes

The Business Owner’s job is not complete when PI planning is done. They have an ongoing role in helping ensure the success of solution delivery. Business Owners typically:

• Maintain alignment – Actively maintain alignment between the business and development as priorities and scope inevitably change.
• Help validate the definition of MVPs – Guide pivot-or-persevere decisions for ART or Solution Epics based on the delivery of the Minimum Viable Product (MVP).
• Attend the System and Solution Demos – Actively engage in the system and solution demos to understand progress and provide feedback.
• Attend Agile team events – Attend team events such as Iteration Planning , Review, and Retrospectives as needs dictate.
• Actively address impediments – Help resolve impediments that escalate beyond the authority of the train’s leaders and stakeholders.
• Participate in  release management – Serve as critical stakeholders in release governance (described in Release on Demand ) and determine when the solutions are released. Specifically, they focus on scope, quality, deployment options, release, and market considerations.

Sponsoring Relentless Improvement

The  Inspect and Adapt (I&A) event is a cadence-based opportunity for the whole ART to reflect on progress and identify the systemic impediments they’re facing—many of which require the BO’s involvement. During the event, BOs assess the actual value achieved versus the plan and participate in the I&A’s problem-solving workshop. Moreover, Business Owners are Lean-Agile Leaders who:

• Continually focus on eliminating waste and delays – Foster the adoption of Principle #6, Make value flow without interruption , including Value Stream Management , the eight flow accelerators, and the six flow measurements (flow distribution, velocity, time, load, efficiency, and predictability ).
• Eliminate demotivating policies and procedures – Actively participate in the I&A’s problem-solving workshop to identify and eliminate systemic issues, policies, and processes that are not aligned with the Lean-Agile Mindset and are not within the scope of the ART’s control.
• I nspire and motivate others – Effectively communicate (frequently) why  change is needed and do so in ways that inspire, motivate, and engage people to buy into the change with a sense of urgency.
• Create a generative culture that highly values relentless improvement – Model the right behaviors to help transform the culture from pathological (negative, power-oriented) and bureaucratic (negative, rule-oriented) to a positive, performance-oriented culture, which is required for the Lean-Agile mindset to flourish.
• Provide the time and space for teams to innovate – Foster the use of IP iterations to provide a regular, cadence-based opportunity for teams to work on innovation, improvement activities, and learning that are often difficult to fit into a continuous, incremental value delivery pattern.
• Help drive investment in the continuous delivery pipeline – Supports process and infrastructure enhancements to the Continuous Delivery Pipeline to improve the responsiveness of the ART and the quality of its solutions.

It cannot be emphasized enough: Active participation of Business Owners is critical to the SAFe enterprise.  

[1] Sowell, Thomas. “Wake up, p arents!” Jewish World Review , August 18, 2000.

Last update: 3 July 2023

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The Agile Architect

Measuring the Business Value of Projects with Agile

Measuring business value is a challenge regardless of the methodology you use. Our Agile Architect explains how agile principles and practices can be used to ask the right questions.

• By Mark J. Balbes, Ph.D.
• August 30, 2012

In my last column, I promised you that we'd discuss measuring business value this month. While I fully intend to do that, first I want to set expectations appropriately. This is a really hard problem. There is no right answer, and you can never definitively know what the true value of a project is.

Why is that, you ask? After all, this should be a pretty straight-forward problem -- a simple mathematical equation: Business Value = (money earned) – (money spent). Or is it Business Value = (money earned)/(money spent)? Umm, and then there's something about opportunity costs, right? If I'd spent the money on a different project, could I have had a greater return?

And then there are all the intangibles. What if someone on the project team doesn't want to be on the project so they decide to find another job? There's a cost to replacing them. Or the project brings in money but at the cost of your users' goodwill, e.g. forcing a paid upgrade.

So much of business value is wrapped up in the specifics of your business that it would be rather arrogant of me to say that I can tell you how to measure your business value. But I can give you some ideas of how agile techniques can inform your decisions and provide some metrics-driven approaches to measuring that value.

One way to attack a large, poorly defined problem is to break it down into more manageable pieces. We can do that with business value by asking two questions:

• How do I measure the relative business value of features within a project?
• How do I measure the business value of projects with respect to each other?

Let's do the easier one first.

I've recently been experimenting with this on my projects. The customer ( i.e. , the business representative on our team), not the developers, estimates the relative business value for our stories. Assignment of the business value points is as much an art as it is a science. 

With the business value points assigned, we can then watch how many of these points we accomplish each week as well as our velocity. While we expect our velocity to stay flat or increase over time as we get better at development, we expect our total business value points per week to decrease as we work on less important stories as the project progresses.

Measuring this business value burn-up through the life of the project provides multiple advantages. First, the practice itself forces the customer (or customers) to go through the exercise of looking at the stories to figure out their relative value. This brings up questions that might otherwise not be asked. For example, user interface cosmetics and usability stories tend to be ranked as less important than functionality, at least initially, by customers. Once they start using business value points as a way to prioritize stories, they realize that they want to place these low business value stories ahead of much higher scoring stories. Whether that's right or wrong, whether the points are wrong or the priorities are wrong, whether points don't absolutely determine priority, all depends on the project and the business. What is important is that the discrepancies are being pointed out and discussed.

Ultimately, tracking the burn-up of business value points allows you to see quantitatively when you are getting less return on your investment in a project. This lets you end the project when it is no longer providing enough value, rather than at some arbitrary calendar date or pre-determined dollar expenditure.

Well, that's not quite true, at least if you keep good project metrics. A team's historic velocity tells them how much work they can get done in a given week. If you track the man-hours spent developing a story, you can pretty quickly build up a metric that relates story points to man-hours.

O.K., I hear all you agile coaches screaming, "Story points don't equate to real hours! It's a relative measure and it's only an estimate.  Please stop your insanity before you convince management that they can hold us to these estimates."

I hear your cries and I agree with you -- in the "small." Story points are estimates, and for any given story they won't translate into an accurate estimate of man-hours. The same statement is not true in the "large," given certain caveats.

If I've tracked the man-hours spent on each story, then I can calculate the average ratio of man-hours to story points for an aggregate set of stories, e.g., for a minimal marketable feature or a small release. If the standard deviation of the average is small ( i.e ., the team estimates consistently) and I have averages from a lot of minimal marketable features and releases that maintain that consistency, and the team makeup stays relatively constant, then I can use that average ratio to predict how much work is left on a project in terms of real man hours. Real man-hours translate across projects and can be used to estimate the actual costs associated with a project. I do this routinely on my projects and it does work, but you have to build up the metrics first using a mature, stable team.

So that's information about the cost side of the equation. What about the actual value side?

That's going to depend on what your business actually is. For example, if you are a company that sells software products, then you may try to equate business value points to revenue based on historic metrics, just as we did for story points. Given the difficulty of partitioning a single revenue stream, e.g., sale of a product, to all the projects that contributed to it, it might be impossible for many businesses. But if you have multiple products, it could give you quantitative metrics for comparison. (Fair Warning!: This sounds like a reasonable approach to me, but I've never done it.)

On the other hand, if you're a company that builds software for internal systems, then IT may be a cost center with no profit capability at all. In this, case, business value is achieved by minimizing IT costs while maximizing enablement of the rest of the company. You would want to identify real-world metrics ( e.g., man-hours spent on support calls for each system or hours spent by users to accomplish specific high-value tasks) to equate to business value points for projects for a given system.

Ultimately, the desire is to have metrics on your projects that feed business value calculations that contribute to a managed project portfolio.

I'll leave you with an open question. Given a metrics-based approach, rather than attempt to analyze business value in a vacuum before a project starts, might it be better to start projects, see what the metrics say about business value relative to other projects, then fail fast if the value isn't there?

About the Author

Dr. Mark Balbes is Chief Technology Officer at Docuverus. He received his Ph.D. in Nuclear Physics from Duke University in 1992, then continued his research in nuclear astrophysics at Ohio State University. Dr. Balbes has worked in the industrial sector since 1995 applying his scientific expertise to the disciplines of software development. He has led teams as small as a few software developers to as large as a multi-national Engineering department with development centers in the U.S., Canada, and India. Whether serving as product manager, chief scientist, or chief architect, he provides both technical and thought leadership around Agile development, Agile architecture, and Agile project management principles.

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Value creation in business: importance, concepts, & examples

When it comes to investing in the most valuable services, the customer is always right. After all, if customers spend their hard-earned income on a product or service, they want the best bang for their buck.

Like customer needs, those of stakeholders are equally important. Of course, you can’t forget to prioritize your company’s interests, as well. How does each value chain intersect to create profitable business initiatives?

The most successful businesses understand how to leverage value creation. Creating sustainable customer value, stakeholder value, and company value keeps you top-of-mind and gives you a competitive edge whether you’re a small business or corporation. 

• What is value creation in business?

Why is value creation important?

How is value creation achieved, what are some examples of companies leveraging value creation, how can you unlock business opportunities through skillful negotiation, what is value creation in business.

Value creation identifies the intersection between the overlapping interests of customers, stakeholders, and the organization itself. A successful business model leverages all of these values within company initiatives. 

Value creation is offering products that meet and exceed customers’ expectations. When a company inspires customer loyalty, profits increase. When stakeholders receive high returns on their investments, they’re willing to contribute more capital. This capital sustains the company’s future initiatives, such as increased employee benefits and training. When employees are valued, productivity and product innovation increase. 

Do you notice a trend? By focusing on value creation, the initial investment reinvests itself and is amplified.

Investing in value creation sparks a cycle of sustained advantages for all aspects of your business. In other words, the value creation trade-offs keep your business profitable so you can continue doing what you’re doing – and do it even better. These are the key areas influenced by value creation: 

1. Sustainable business success

Targeted value creation ensures long-term value for this quarter and for years to come. Without a clear vision of the company’s objectives, initiatives are unfocused. When resources aren’t sustainably allocated, cash flow halts, the bottom line decreases, and future endeavors are at a disadvantage. 

2. Customer satisfaction

The customer relationship doesn’t end at the buying decision. In fact, it begins with the creation of value. Sustained customer satisfaction results in continued business with supportive consumers. These long-term customers inspire new purchases through word-of-mouth product recommendations to their friends and family. 

3. Competitive advantage

When value creation informs your company’s initiatives, it keeps your offerings top-of-mind and your name at the top of the food chain. The shutdown of many businesses during the COVID-19 pandemic proves that having a competitive advantage does more than increase profits – it can keep your company alive during times of strained financial returns. 

4. Stakeholder engagement

Within a company’s practices, value creation can take the form of transparent communication regarding goals, performance, and assets with stakeholders. This clarity sustains the balance between internal initiatives and stakeholder engagement. The decision-making process strengthens when these perspectives align. 

5. Financial performance

Understanding the values and needs of customers, stakeholders, and the organization results in the most competitive pricing that both appeals to customers and optimizes profits. When the creation of value takes center stage in the decision-making process, financial returns are fully realized because of the precision of company initiatives. 

6. Innovation and adaptability

Change is the only constant, and customer needs are no exception. Without refocusing efforts and innovating your offerings, your customers will find another company that can meet their evolving expectations. Innovating your products and services retains old customers and attracts new ones.

Enjoy the TED Talk about Value Creation by Bill Gross!

Bill Gross has founded a lot of start-ups, and incubated many others — and he got curious about why some succeeded and others failed. So he gathered data from hundreds of companies, his own and other people’s, and ranked each company on five key factors.

Factors accounted the most for success and failure: The number one thing was timing – 42 percent of the difference between success and failure. Team and execution came in second, and the idea, the differentiability of the idea, the uniqueness of the idea, that actually came in third. — Bill Gross

Although values are intangible, they need real metrics to have a real impact. Now that we’ve covered the foundations of value creation, let’s explore what they look like in practice. 

• Customer needs : How do you meet and exceed customer needs? It all comes down to quality over quantity. When you understand what your customer wants, you create products that precisely meet their expectations. This precision requires understanding your targeted consumer’s specific market segments.  Consumers want to get their purchase decision right the first time, which means buying products that add the most value. Researching current, short-term customer needs and anticipating their future preferences results in high-value products. 
• Innovation : Everyone would rather be a leader in their industry instead of scrambling to keep up. Fostering innovation in products and processes creates cutting-edge value within all aspects of your business model, from development to launch. Innovation creates financially sustainable practices and high-value customer offerings.  Without innovation, your products become relics (like the Blackberry phone, which recently became obsolete after being edged out by its more innovative competitors). 
• Customer satisfaction : Creating value for your customers through high-value, innovative products increases customer satisfaction and loyalty. Satisfaction is a difficult metric to quantify, but tangible services like customer loyalty programs and responsive customer service departments enhance the customer experience.
• Efficiency : Targeted value creation improves operational efficiency and cost-effectiveness within your company’s processes. Understanding how each step fits together (and its impact) allows for optimization and the sustainable allocation of resources.  This value creation could look like implementing a new workflow software that automates paperwork. Employees are now free to refocus the time and energy they once spent on paperwork to larger company objectives. 
• Differentiation : Having a strong company vision influenced by value-creation strategies ensures you and your employees stand out as business leaders. A unique value proposition differentiates your skills and offerings from competitors. Customers understand exactly how you meet their specific needs through the precise value of your company’s products and partnerships.
• Social and environmental responsibility : With the ever-increasing impact of climate change , consumers are asking for value in terms of sustainable business practices . Eco-consciousness is admirable, but exaggerating sustainable initiatives recycles the same problem. Companies that misrepresent their sustainable practices as a marketing ploy have been accused of greenwashing .  Fear of greenwashing backlash causes some companies to greenhush , or under-communicate their climate objectives. Meeting customer expectations for sustainability – and presenting your company’s practices honestly – balances these value-creating fundamentals. 

Companies that understand how to leverage value creation often become household names. Let’s take a look at how three companies became business leaders.

Apple Inc. was founded in 1976. Over 40 years later, its product launches still create a stir. Apple’s innovative products, namely the iPhone, iPad, and iMac, consistently meet customer needs through value creation that prioritizes quality and user experience. 

The company has consistently innovated its business practices , such as creating seamless integration across all devices. Because Apple has found a balance between the interests of consumers, stakeholders, and company initiatives, the company consistently dominates market shares in the tech industry. 

Airbnb disrupted the hospitality industry by directly connecting people needing a place to stay with people who had a room to spare. The company recognized the needs of both parties and launched a service that benefited everyone. 

Airbnb added value through its online platform by providing affordable short-term housing and allowing homeowners to monetize their spaces. Additionally, by interrupting the supply chain and cutting out hotel operating costs, the company maximized its profits to create value for itself as an organization. 

Patagonia is a brand with a cult following because of its high-quality outdoor clothing and commitment to sustainability and social responsibility. The company is known for sustainable manufacturing through transparent supply chains. Patagonia has established strong customer loyalty – which in turn has inspired counterfeit clothing. 

Patagonia has launched a lawsuit against Nordstrom for selling knock-off products. This lawsuit reinforces the company’s value creation because it protects the quality of its products, reinforces its branding, and removes unsustainable clothing from the racks. 

In a move that makes Patagonia’s stakeholders the largest of all, Patagonia founder Yvon Chouinard has declared that Earth is now Patagonia’s shareholder . The founder renounced his ownership, and the company’s profits now funnel toward fighting climate change. 

Value creation is an investment that has major returns for both large corporations and small businesses. At every level and department within a company, understanding how to leverage the value-creation process is a skill that establishes you as an integral team player. 

If you want to learn how to create the most value for your customers, stakeholders, and company, IMD’s “Negotiating for Value Creation” program can build the skills to establish your thought leadership within the boardroom and beyond.

Strategic planning aligns the organization with a common understanding of what they want to achieve and how they will get there with daily operations. It’s taking a company’s vision and breaking it into mid-term and long-term goals. In contrast to strategic planning, business planning focuses on short-term goals. But a strategic plan sets priorities to […]

Ever stood at the crossroads of business decisions, the winds of uncertainty howling around you? Illuminate your path with the beacon of SWOT analysis. This revered compass, trusted by entrepreneurs and seasoned executives alike, unveils the landscape of opportunities and hurdles that lie ahead, waiting to be conquered.  A SWOT analysis is a powerful tool […]

Planning is an important part of most people’s days. Even if you’re the most driven person alive, it’s easy to get sidetracked if you don’t have an action plan.  Maybe you need to train for a marathon and sort the mail, but you binge-watch a new TV show instead. The next day, you’re behind on […]

When it comes to investing in the most valuable services, the customer is always right. After all, if customers spend their hard-earned income on a product or service, they want the best bang for their buck. Like customer needs, those of stakeholders are equally important. Of course, you can’t forget to prioritize your company’s interests, […]

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Communicate with clients to identify the correct goals and benchmarks..

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• Audit & Assurance

DEFINE THE ENGAGEMENT Prior to accepting a BV assignment, you must understand your subject and your purpose. As soon as the person hiring you (who may be the owner of the business to be valued, an acquiring business, an attorney or a bank representative, for example) broaches the subject, you should begin the process of gathering data for preparing an engagement letter.

Finding out the relevant facts of the assignment is something valuators refer to as “defining the engagement.” It’s more complex than it sounds, and the crux of doing it well is to assume nothing and spell out as much as possible. Robin E. Taylor, CPA/ABV, a Dixon Odom LLC principal and president of the Financial Consulting Group national BV alliance, says its members often use its Web site to refine ideas about “defining the assignment before the actual work begins.”

Obtain as many relevant facts as you can about the entity and the circumstances the valuation is intended to satisfy (whether it’s for a liquidation, M&A, divorce or tax purposes, for instance) and note them. To ensure you and the client agree about what services you will perform, send the client an engagement planning form and ask him or her to complete and return it (see exhibit ). This form covers basic contact information: who actually is engaging you (such as the client or the user of the report), the purpose for the valuation, timing, fees, the subject to be valued and other relevant items. The valuator will incorporate these data into the engagement letter and review and note the assumptions and conditions likely to apply. You will include all of this in your letter and, later, in the valuation report.

To avoid problems such as conflict of interest, “it is extremely important to identify your client,” says Linda B. Trugman, CPA/ABV of RCH Trugman Valuation Associates. “For example, in a divorce situation, if the valuator is hired by the wife or the wife’s attorney, the wife is the client even if the husband is the business owner. It will be necessary to discuss the business operations with the husband, but it is unacceptable to discuss the case with him or his attorney.” The CPA valuator always should remember who the client is in all interactions.

Consult the AICPA, state CPA societies and colleagues for a suitable model if you’re in doubt about the language. Gary Trugman’s Understanding Business Valuation (an AICPA publication) covers this topic well. Another good resource is the CPA’s Guide to Effective Engagement Letters, Aspen Publishers, www.aspenpublishers.com . To express a clear understanding on all critical issues, make sure your letter does the following:

Keep the following in mind:

The CPA/valuator can avoid costly mistakes by adhering to a few relatively simple procedures. Sound planning and preparation can make a valuation engagement proceed smoothly and enhance your success in the BV field.

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Introduction to Business Valuation

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• In book: Valuation Challenges and Solutions in Contemporary Businesses (pp.1-23)

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Here's How to Value a Company [With Examples]

Published: May 24, 2023

What's your company worth? It's an important question for any entrepreneur , business owner , or potential investor.

What's more, knowing how to value your business becomes increasingly important as it grows, especially if you want to raise capital, sell a portion of the business, or borrow money. 

Here, we'll take a look at different factors to consider when valuing your business, common equations you can use, and high-quality tools that will help you crunch the numbers.

Table of Contents

How to value a business.

Public vs. Private Valuations

Business Valuation Methods

Business Valuation Calculators

Company valuation example, what is a business valuation.

As the name suggests, a business valuation determines the value of a business or company. During the process, all areas of a business are carefully analyzed, including its financial performance, assets and liabilities, market position, and future growth potential.

Ultimately, the goal is to arrive at a fair and objective estimate which can be useful in making business decisions and negotiating.

• Company Size
• Profitability
• Market Traction and Growth Rate
• Sustainable Competitive Advantage
• Future Growth Potential

1. Company Size

Company size is a commonly used factor when valuing a company. Typically, the larger the business, the higher the valuation will be. This is because smaller companies have little market power and are more negatively impacted by the loss of key leaders. In addition, larger businesses likely have a well-developed product or service and, as a result, more accessible capital.

2. Profitability

Is your company earning a profit?

If so, this a good sign, as businesses with higher profit margins will be valued higher than those with low margins or profit loss. The primary strategy for valuing your business based on profitability is through understanding your sales and revenue data. 

Valuing a Company Based On Sales and Revenue

Valuing a business based on sales and revenue uses your totals before subtracting operating expenses and multiplying that number by an industry multiple. Your industry multiple is an average of what businesses typically sell for in your industry so, if your multiple is two, companies usually sell for 2x their annual sales and revenue.

3. Market Traction and Growth Rate

When valuing a company based on market traction and growth rate, your business is compared to your competitors. Investors want to know how large your industry market share is, how much of it you control, and how quickly you can capture a percentage of the market. The quicker you reach the market, the higher your business’ valuation will be.

4. Sustainable Competitive Advantage

What sets your product, service, or solution apart from competitors? 

With this method, the way you provide value to customers needs to differentiate you from the competition. If this competitive advantage is too difficult to maintain over time, this could negatively impact your business' valuation. 

A sustainable competitive advantage helps your business build and maintain an edge over competitors or copycats in the future, pricing you higher than your competitors because you have something unique to offer.

5. Future Growth Potential

Is your market or industry expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of your business. If investors know your business will grow in the future, the company valuation will be higher. 

The financial industry is built on trying to accurately define current growth potential and future valuation. All the characteristics listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.

Depending on your type of business, there are different metrics used to value public and private companies.

Public Versus Private Valuation

Public Company Valuation

For public companies, valuation is referred to as market capitalization (which we’ll discuss below) — where the value of the company equals the total number of outstanding shares multiplied by the price of the shares.

Public companies can also trade on book value, which is the total amount of assets minus liabilities on your company balance sheet. The value is based on the asset’s original cost less any depreciation, amortization, or impairment costs made against the asset.

Private Company Valuation

Private companies are often harder to value because there's less public information, a limited track record of performance, and financial results are either unavailable or might not be audited for accuracy.

Let's take a look at the valuations of companies in three stages of entrepreneurial growth.

1. Ideation Stage

Startups in the ideation stage are companies with an idea, a business plan, or a concept of how to gain customers, but they're in the early stages of implementing a process. Without any financial results, the valuation is based on either the track record of the founders or the level of innovation that potential investors see in the idea.

A startup without a financial track record is valued at an amount that can be negotiated. Most startups I've reviewed created by a first-time entrepreneur start with a valuation between $1.5 and $6 million.

All the value is based on the expectation of future growth. It's not always in the entrepreneur’s best interest to maximize its value at this stage if the goal is to have multiple funding rounds. The valuation of early-stage companies can be challenging due to these factors.

2. Proof of Concept

Next is the proof of concept stage. This is when a company has a handful of employees and actual operating results. At this stage, the rate of sustainable growth becomes the most crucial factor in valuation. Execution of the business process is proven, and comparisons are easier because of available financial information.

Companies that reach this stage are either valued based on their revenue growth rate or the rest of the industry. Additional factors are comparing peer performance and how well the business is executing in comparison to its plan. Depending on the company and the industry, the company will trade as a multiple of revenue or EBITDA (earnings before interest, taxed, depreciation, and amortization).

3. Proof of Business Model

The third stage of startup valuation is the proof of the business model. This is when a company has proven its concept and begins scaling because it has a sustainable business model.

At this point, the company has several years of actual financial results, one or more products shipping, statistics on how well the products are selling, and product retention numbers.

Depending on your company, there are a variety of equations to use to value your business.

Company Valuation Methods

Let’s take a look at some of the formulas for business valuation. 

Market Capitalization Formula

Market Value Capitalization is a measure of a company’s value based on stock price and shares outstanding. Here is the formula you would use based on your business’ specific numbers: 

Multiplier Method Formula

You would use this method if you’re hoping to value your business based on specific figures like revenue and sales. Here is the formula: 

Discounted Cash Flow Method

Discounted Cash Flow (DCF) is a valuation technique based on future growth potential. This strategy predicts how much return can come from an investment in your company. It is the most complicated mathematical formula on this list, as there are many variables required. Here is the formula: 

Image Source

Here are what the variables mean: 

• CF = Cash flow during a given year (can include as many years as you’d like, simply follow the same structure).
• r = discount rate, sometimes referred to as weighted average cost of capital ( WACC ). This is the rate that a business expects to pay for its assets.

This method, along with others on this list, requires accurate math calculations. To ensure you’re on the right track, it may be helpful to use a calculator tool. Below we’ll recommend some high-quality options. 

Below are business valuation calculators you can use to estimate your companies value.

This calculator looks at your business' current earnings and expected future earnings to determine a valuation. Other business elements the calculator considers are the levels of risk involved (e.g., business, financial, and industry risk) and how marketable the company is.

2. EquityNet

EquityNet's business valuation calculator looks at various factors to create an estimate of your business’s value. These factors include:

• Odds of the business' survival
• Industry the business operates in
• Assets and liabilities
• Predicted future revenue
• Estimated profit or loss

3. ExitAdviser

ExitAdviser's calculator uses the discounted cash flow (DCF) method to determine a business’s value. To determine the valuation, "it takes the expected future cash flows and ‘discounts' them back to the present day.”

It may be helpful to have an example of company valuation, so we’ll go over one using the market capitalization formula displayed below: 

Shares Outstanding x Current Stock Price = Market Capitalization

For this equation, I need to know my business’s current stock price and the number of outstanding shares. Here are some sample numbers: 

Shares Outstanding: $250,000

Current Stock Price: $11

Here is what my formula would look like when I plug in the numbers:

250,000 x 11 

Based on my calculations, my company’s market value is 2,750,000.

Back to You

Whether you’re looking to borrow money, sell a portion of your company, or simply understand your market value, understanding how much your business is worth is important for your business’ growth.

Don't forget to share this post!

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Business Model Canvas: Explained with Examples

Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

• The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
• The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
• The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
• The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
• The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
• It’s easier to edit and can be easily shared with employees and stakeholders.
• The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
• The business model canvas can be used by large corporations and startups with just a few employees.
• The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
• You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
• The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
• A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

What are the Key Building Blocks of the Business Model Canvas?

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

• Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

There are different customer segments a business model can target and they are;

• Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
• Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
• Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
• Diversified: A diversified market segment includes customers with very different needs.
• Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

• Personal assistance: you interact with the customer in person or by email, through phone call or other means.
• Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
• Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
• Automated services: this includes automated processes or machinery that helps customers perform services themselves.
• Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
• Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

• Owned channels: company website, social media sites, in-house sales, etc.
• Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

• Transaction-based revenue: made from customers who make a one-time payment
• Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

• Asset sales: by selling the rights of ownership for a product to a buyer
• Usage fee: by charging the customer for the use of its product or service
• Subscription fee: by charging the customer for using its product regularly and consistently
• Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
• Licensing: customer pays to get permission to use the company’s intellectual property
• Brokerage fees: revenue generated by acting as an intermediary between two or more parties
• Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

• Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
• Problem-solving: finding new solutions to individual problems faced by customers.
• Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

• Human (employees)
• Financial (cash, lines of credit, etc.)
• Intellectual (brand, patents, IP, copyright)
• Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

• Strategic alliance: partnership between non-competitors
• Coopetition: strategic partnership between partners
• Joint ventures: partners developing a new business
• Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

• Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
• Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
• Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
• Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
• Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
• Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

FAQs About the Business Model Canvas

• Use clear and concise language
• Use visual-aids
• Customize for your audience
• Highlight key insights
• Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

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Business Value Assessment

In a nutshell, BVA is the process of quantifying the potential value of proposed changes to an organization. This could be anything from a new product or service, to a change in processes or organizational structure.

The goal of BVA is to help businesses make informed decisions about where to allocate resources in order to maximize value.

There are many different ways to approach BVA, but in general, it involves breaking down the proposed change into its component parts, and then quantifying the potential impact of each part on various measures of business value.

• 1 What is Business Value Assessment (BVA)?
• 2 What are the different types of business value assessments?
• 3 What are the benefits of a business value assessment?
• 4 What are the costs of a business value assessment?
• 5 How is a business value assessment conducted?
• 6 What are the different types of value assessments?
• 7 What is the difference between a business value assessment and a business impact assessment?
• 8 What are the steps in a business value assessment?
• 9 What are the deliverables of a business value assessment?
• 10 How can I get started with a business value assessment?
• 11 See Also
• 12 References

What is Business Value Assessment (BVA)?

The purpose of a Business Value Assessment (BVA) is to provide financial justification for the investment in digitalization. A BVA workshop with Espeo Software can offer numerous advantages, including both financial justification and thorough explanations of the potential benefits associated with the investment.

What are the different types of business value assessments?

There are three main types of business value assessments: financial, operational, and customer. Financial assessments look at the costs and benefits of a change; operational assessments look at how well a change will work in the real world; and customer assessments look at how a change will impact the customer's experience.

What are the benefits of a business value assessment?

Business value assessment (BVA) is a process used by companies to determine what their assets are and how much they're worth. BVA helps organizations identify which strategies will create the most value for their shareholders. Additionally, it can help companies identify which strategies are most likely to sustain value over time.

What are the costs of a business value assessment?

Business value assessments (BVA) are a type of business analysis that helps companies determine the true worth of their assets. The assessment typically includes an examination of the company's financials, operations, and products. The cost of a BVA typically depends on the size and complexity of the undertaking, but can often run into the tens of thousands of dollars.

How is a business value assessment conducted?

A business value assessment (BVA) is a process that helps organizations understand the true economic worth of their assets and identifies opportunities to increase those values. The goal of a BVA is not only to increase profitability, but also to create a more efficient and effective business.

A BVA typically involves the following five steps: 1. Define the problem or opportunity 2. Identify the key stakeholders 3. Generate a value chain analysis 4. Assess the potential impact of alternative solutions 5. Make recommendations

A BVA can be used to assess the value of anything from a new product or service to an existing business unit or function. The key is to identify the factors that drive value and to quantify the potential impact of each factor.

There are many different ways to conduct a BVA, but most follow a similar basic structure. The first step is to define the problem or opportunity that you are trying to assess. This may seem like a simple task, but it is important to be as specific and clear as possible. Once you have defined the problem, you need to identify the factors that drive value. These factors will be different for every problem, but some common ones include revenue, costs, risk, and customer satisfaction. Once you have identified the factors that drive value, you need to quantify the potential impact of each factor. This can be done using a variety of methods, including financial analysis, surveys, interviews, and data analysis. Once you have quantified the potential impact of each factor, you need to weight each factor according to its importance. This will help you prioritize the factors that have the biggest impact on value.

Once you have quantified and weighted the factors that drive value, you need to assess the current state of each factor. This can be done using a variety of methods, including surveys, interviews, data analysis, and financial analysis. Once you have assessed the current state of each factor, you need to compare it to the desired state. This will help you identify the gap between the current state and the desired state.

The final step in the BVA process is to quantify the value of each factor. This can be done using a variety of methods, including financial analysis, data analysis, and surveys. Once you have quantified the value of each factor, you can add up the values to get the total value of the business.

The BVA process is a powerful tool that can help you assess the value of your business.

What are the different types of value assessments?

There are three types of value assessments: qualitative, quantitative, and mixed. Qualitative assessments focus on the subjective experience of an individual or group while quantitative assessments look at measurable data. Mixed value assessments take both qualitative and quantitative approaches to assessing the value of a product or service.

What is the difference between a business value assessment and a business impact assessment?

Business value assessment is a tool used to help identify the true financial value of an organization's assets. Business impact assessment is a tool used to measure the potential consequences of actions or decisions on an organization's business.

What are the steps in a business value assessment?

There are a few steps in conducting a business value assessment, which include understanding the company's business, its competitive landscape, and its customers. Next, the company needs to identify what its core business values are. After that, it needs to measure the impact of its business on those values and determine if any have changed over time. Finally, the company should consider what changes it needs to make to continue supporting its core values and how those changes will impact its competitive position.

What are the deliverables of a business value assessment?

The deliverables of a business value assessment can vary depending on the size and nature of the organization, but typically include a detailed report that outlines key areas where the company could improve its profitability. Additionally, the assessment may also include recommendations for how to improve those areas.

How can I get started with a business value assessment?

Business value assessment (BVA) is the process of determining what a company's assets and liabilities are worth. This can be done by measuring key performance indicators (KPIs), surveying competitors, and conducting market research. There are a number of different software platforms that can be used for BVA, including Lean Startup Methodology (LSM) and Business Model Canvas (BMC).

Business value assessment (BVA) is an important tool that can help you identify and assess the potential benefits of a potential investment.

Value requirements tracking is important for a successful BVA for several reasons. First, it helps ensure that all stakeholders are considered during the assessment process. Second, it allows decision-makers to identify key objectives and results that they would like to see from the transformation activity. Third, it provides a framework for analyzing and documenting the business's data flow, user experience, and functional requirements. Finally, value requirements tracking can help you determine the strategic value of the business to potential acquirers.

• IT Investment (Information Technology Investment)

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