Replacing flawed NPV

“NPV has serious flaws that distort reality on long term projects and does not include explicit risk inclusion” is the general consensus brought forward by a wide array of CEO and CFO in various industries worldwide.

Indeed even thus the NPV is frequently used to compare alternatives; it is plagued by difficulties in selecting the right discount rate, or plain inadequate when integrating alternatives’ specific risks in the comparison process. Indeed, two code compliant alternatives with similar NPV might have significant different risks and should lead to a very different “NPV values”, which is unfortunately not the case.

Bringing new depth to preliminary financial analysis of decision alternatives.

Very recently a company named Riskope International (www.riskope.com) has announced a new successful deployment of its Comparative Decision Analysis Methodology (CDA). CDA overcomes the problems of NPV and brings new depth to preliminary analyses of decision alternatives.

The calculations are all probabilistic and consider income, expenses, financial costs (interests and amortizations), as well as internal and external risks from cradle to grave of the alternatives. The yearly balance of the project/corporation is evaluated together with the probability that the project/corporation brings in positive results, commercial financing are sufficient and their amortization is possible. If reclamation/demolition bonds have to be paid, then their payment is also taken into account.

CDAs simulate the life of a corporation or a project from a selected initial stage (for example starting at construction/implementation, or acquisition, or sale, etc.) for a selected life span, and compare different alternatives including internal and external risks over duration selected by the client

Companies that use CDA develop leading competitive edges

By mastering uncertainties proactive companies are able to develop leading competitive edges against their competitors, says Franco Oboni, Comparative Decision Analyst supervisor of a 60Mm3 Italian dry asbestos tailings environmental remediation international bid winning group.

In Q1-2008 Riskope evaluated alternative development strategies for a micro-turbine startup in Switzerland, after several deployments for resources and transportation industry world-wide in 2007.

CDA considers uncertainties and brings a leading competitive edge to its users, fostering sustainability and success.

More information about this topic can be found (www.riskope.com ), or to ask specific questions please use the contact of the website.