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| VALUATION |
Is there a better way to perform valuations?
To ignore the effects of uncertainty in a valuation means to potentially expose your organization to unnecessary risk and potential failure. Yet that is exactly what professionals do when they use Microsoft® Excel® without additional analytical support. In traditional valuation spreadsheets, you are forced to rely on best-guess or average values even when you know that inputs such as market size, units sold and royalty rate are uncertain and uncontrollable.
Whether you're creating a business case, calculating NPV, setting terms for licensing/assigning IP rights, establishing a mutually acceptable appreciation of value, or valuing financial instruments, derivatives, and securities, you need to account for the uncertainty in your models. Your knowledge
and your toolset will make the difference between whether
your work succeeds or fails. No matter what risks you face, Crystal Ball software
can help you find the specific solution for your needs.
Crystal Ball is a Microsoft® Excel®-based suite of analytical tools that includes Monte Carlo simulation, optimization, and forecasting. With little effort, you can apply these advanced analytical techniques to your new or existing spreadsheets to create more accurate cost and financial predictions and better informed business and negotiation decisions.
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With Crystal Ball tools, you can:
- Mitigate risk in ROI and NPV calculations
- Gain immediate insight on the variables that most drive value
- Replace min/max estimates with more accurate range of all possible outcomes
Provide decision-makers with factual data that shows the risk associated with each choice
- Consider multiple aspects of problem such as constraints, goals, and requirements,
- Replace costly “what if” iterations with automated procedures,
- Optimize processes, products, or portfolios,
- Perform efficient asset allocation given budgetary constraints and other requirements
 Key
features of interest to your industry include sensitivity
analysis, historical data fitting and real options. The sensitivity
analysis helps you to understand which of the uncertain input variables
are most critical and drive the uncertainty of your cost
model. Correlation lets you link uncertain inputs and account
for their positive or negative dependencies. If historical data
does exist, the data fitting feature will compare the data to
the distribution algorithms and calculate the best possible fit
and parameters for your data.
Real-options analysis applies financial options theory to
capital investments. Why is it a real option? It is "real"
because you are investing in operating capital instead of
financial capital. It is an "option" because you
are investing in the right, but not the obligation, to invest. Real options are used in situations where management has
flexibility in large capital budget decisions with high uncertainty.
Some examples include research and development projects, mergers
and acquisitions, technology development, facility expansion,
e-business project prioritization, enterprise wide risk management,
business unit budgeting, licensing, contract valuation, and
intangible asset valuation.
Advantages of real options include:
- Identify, value, select, and prioritize capital investments
- Gain additional insights into strategic value and management flexibility in decision-making
- Correctly value a project's total value, including its strategic intrinsic value
- Identify and frame strategic opportunities
- Use a reliable, repeatable, and consistent process for decision-making
- Analyze multiple decision pathways
- Incorporate new assumptions over time as opposed to the requirement of defining all assumptions at the outset for net present value (NPV) analysis
- Perform Monte Carlo simulation of risk variables, which lets you quickly run hundreds or thousands of “what-if ” scenarios and determine the probability of a given scenario happening
- Minimize the possibility of making detrimental decisions
- Value investment decisions that cannot be otherwise valued
> Visit our Real Options application page for more information
LEARN MORE ABOUT CRYSTAL BALL FOR VALUATION
This page offers links to a growing number of resources, including recorded Web seminars, articles, white papers, case studies, and example models. Additionally, you can view a list of common uses and examples reported directly from customers using Crystal Ball. You can also download a free trial version of Crystal Ball to see how it can help improve your business forecasts and decisions!
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RECORDED WEB SEMINARS
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NPV and the Impact of Risk
Learn how to integrate NPV with defined accounting measures like ARR and ROI.
Presented by John Casticas, Managing Partner, John Nicholas & Company
Recorded April 10, 2007
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No recording
 Download files
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Using Monte Carlo Simulation in Valuing Drug Discovery Pipelines
Learned how stochastic analysis can be used in the valuation of both early and late stage drug discovery pipelines to understand the risk-adjusted value of the pipeline and determine how to increase the expected monetary value (EMV).
Presented by Walter Greenblatt, Managing Director of Walter Greenblatt & Associates
Recorded October 12, 2005
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View recording
Download files |
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Capital Project Evaluation and Optimization with Crystal Ball Tools
Learn how to use time series forecasting to estimate future market share, how to use optimization of product pricing over product life to maximize profit, and how to perform valuation of strategic flexibility to expand production in strong market conditions.
The conclusions of the seminar focus on the dramatic transformation of the original single point-estimate profit forecast, into a more realistic and valuable assessment of expected profit, risk, and key drivers that guide management in its decision-making.
Presented by Steve Hoye, Senior Risk Consultant at Oracle
Recorded October 3, 2007
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View recording
No downloads |
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Evaluating Mining Projects Using Monte Carlo Simulation
Shows how input parameters such as capital, operating costs, mining rates, recoveries, and metal prices can easily be varied in order to determine which of them will have the greatest impact on the project’s economic success.
Presented by Nathan Stubina of Barrick Gold
Recorded August 7, 2007
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View recording
Download files |
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Modelo de Valoración Financiera Para Proyectos de Construcción
Lo que se propone con esta metodología es una forma más precisa de realizar un análisis financiero por medio de un modelo que permita involucrar el comportamiento de las variables macroeconómicas y microeconómicas que afectan el sector, a través de la proyección de un flujo libre de caja, el cual se descuenta al WACC.
Presented by Sebastián Castaneda, Experto internacional en Crystal Ball y Real Options Analysis Toolkit
Recorded September 27, 2007
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View recording
Download files |
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Business Value Simulations on Basel II Business Case
Discusses data quality and the important role it plays in the framework of Basel II-auditing, as well as building better business cases for Capital Review Committees.
Presented by Julia Stumpenhagen from just.dot and Johannes Ritter from Solution Matrix
Recorded March 15, 2007
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View recording
Download files |
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WHITE PAPERS & ARTICLES
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CASE STUDIES
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Intellectual
Property Economics on Real Options in Patent and Intangible
Valuation |
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EXAMPLE MODELS
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Assessing New Venture Risk and Cash Budgeting with Simulation
From: David C. Barker, M.S., Facility Engineer, Information Systems Manager Supply Chain Management Nevada, Inc., UPS Worldwide Logistics Group, 2275 East Newlands Drive, Fernley, NV 89408, (775) 575-3732, dcbarker@upslogistics.com
Detail: This model accompanies the paper of the same name located in our online article library (click here to view the paper). The purpose of this article and model is to show how simulation, when combined with a traditional cash budget, can greatly help assess the risk of investing in a new venture. The information gained by simulation-based cash budgeting can be very valuable to financial managers and venture capitalists in search of a viable way to assess the risk of starting a new venture. |
Download
For:
Crystal Ball
Level:
Simple |
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Capital Investment Analysis for
Two Industrial Plants
From: Egberto Lucena Teles, accountant, master in accounting,
academical professor - Universidade Mackenzie (São Paulo, Brasil), egberto@mackenzie.com.br
Detail: New projects can involve the acquisition of capital
goods - tangible assets of long useful life as lands, immobile or
machines and industrial equipment. Considering a proposed project
of capital investment, the investors should evaluate the expected
future cash flows in relation to the amount of initial investment.
The objective of the analysis through the method of discounted cash
flows is one of finding projects that have a net present value (NPV)
positive.
In the proposed example, the financial director should make a decision
of capital investment in a new industrial plant. The excluding alternatives,
that will call Plant A and Plant B, involve a cash flow of a period
of six years. The Old Plant (Current) generates a cash flow to present
value of $38,211,000. Besides verifying which Plant (A or B) offers
Cash Flow Increment in relation to Current Plant, this model tests
the implicit risk with relationship to expected return (cash increment).
Two models are included, one for each Plant. |
Download
For:
Crystal Ball
Level: Simple-moderate |
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DCF Analysis - AllergyGone
Detail: Your pharmaceutical company is very interested in acquiring AllergyGone, a potential new anti-allergy drug with no known side effects. You have been asked to produce a Discounted Cash Flow (DCF) analysis of AllergyGone over a five-year period to determine if this product is worth acquiring. Because of the uncertainty in the product pricing, demands, and costs, your company has decided to use Crystal Ball to simulate the Net Present Value (NPV) and Internal Rate of Return (IRR) prior to negotiations. Crystal Ball can help you to determine a bottom-line negotiation price and the model variables that drive the variability in the NPV and IRR forecasts. |
Download
For:
Crystal Ball
Level: Simple-moderate |
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Mine Project Valuation Using Monte Carlo Analysis
From: By Alpay Sergi, Visiting Scholar, and Graham A. Davis, Associate
Professor (gdavis@mines.edu), Division of Economics and Business, Colorado School of Mines, Golden, CO
Detail: A mining corporation is evaluating a small underground gold mining project containing an estimated one million ounces of gold. The project is based on the example given in "Optimum Production Rate Selection" by Bruce Cavender, Mining Engineering,1992. The problem is to value the project using traditional DCF analysis, but to take the valuation impacts of these geological and economic uncertainties into account.
Monte Carlo analysis is useful in this case because 1) the correlations between the uncertain variables that are multiplicands, and 2) the non-linearities in the cash flows created by taxes and an uncertain mine life mean that the expected NPV value from a static analysis is not equal to the mean NPV value from the Monte Carlo exercise. In fact, the only way to estimate an expected value for this project is via Monte Carlo analysis. |
Download
For:
Crystal Ball
Level:
Moderate |
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Netscape Valuation
From: Stephen G. Powell and Kenneth R. Baker, Dartmouth College
Detail: This application is excerpted from The Art of Modeling with Spreadsheets, Stephen G. Powell and Kenneth R. Baker, John Wiley and Sons, 2004.
The initial public offering (IPO) of Netscape Communications Corporation on August 9, 1995, is thought to have signaled the beginning of the Internet boom. This example model uses the Netscape IPO to compare several valuation methods including deterministic, sensitivity, tornado, and uncertainty analysis. The model uses Crystal Ball to examine how the uncertain model parameters affects the valuation of Netscape and whether or not the IPO valuation was justified in light of these uncertainties. |
Download
For:
Crystal Ball
Level: Simple-moderate |
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Patent Licensing Valuations Employing Monte Carlo Scenario Methods to Support Expert Testimony in Court Proceeding
From: Neil M. Kosterman, President, DeltaQuest LLC, 2 Southwick Circle, Madison, WI, 53717, DeltaQuest@tds.net
Detail: As an expert witness in a patent licensing dispute, the author was asked to
model a number of issues, including the damages due to his client (the
inventor) if the legal issues were resolved in his client’s favor.
To establish the damages, the author created this Crystal Ball valuation
model, which analyzes three potential scenarios for damages. |
Download
For:
Crystal Ball
Level:
Simple-moderate |
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Risk in Financial Forecasts Application
for Valuation, Strategic Planning and Capital Appropriation Decisions
From: David T. Hulett, Ph.D., Principal, Hulett & Associates
LLC, Project Management Consultants, 12233 Shetland Lane, Los Angeles,
CA 90049 www.projectrisk.com
Detail: Financial forecasts are notoriously uncertain.
This model is a simple and clear demonstration of how to use Monte
Carlo simulation to calculate the IRR of a project over a five-year
period. The description worksheet discusses the details, assumptions,
and results of the model. The model is (c) 2000 International Institute
for Learning. |
Download
For:
Crystal Ball
Level:
Simple-moderate |
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COMMON USES & EXAMPLES
- Business cases
- Build and run oil and gas portfolio models incorporating uncertainties and risks
- Determine the main business drivers and then to evalute the effect of their variability on the net
- Forecast and NPV sensitivity
- Help with complex option models for purposes of option valuation
- NPV analysis and DCF; real options all in my classes
- Monte Carlo simulation for newly formed hedge funds
- Option valuation
- Petroleum reserves estimates
- Risk analysis in real estate investment analysis
- Stochastic simulation of reserves and cash flows
- Valuation for Business Plans
- Valuation of financial instruments, derivatives, and securities
- Valuation of investments. Price, sales, capex variations in models
- Valuing non-traditional financial instruments like share appreciation rights indexed to the performance of benchmark firms
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TEXTBOOKS
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