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Project Design & Valuation 

Discounted cash flow (DCF) or NPV analysis is a special case of Real Options Valuation if uncertainty is taken away or if management is committed to its future plans (being unable to revise future decisions). At the Real Options Group we value investment projects and companies with full regard for the flexibility that managers have to react to changes in the business environment and adjust their future plans. A typical project may contain options to defer, stage, abandon, expand or to switch to a more profitable investment, allowing managers to limit downside losses or capitalize on upside potential. These options may occur naturally, or they may be designed in, at a cost. The latter situation is more prevalent in the case of licensing in/out or other contractual agreements. The present framework of DCF fails to take such options into account, so potentially good projects may be ignored or receive the wrong priority in the company’s allocation process.

Armed with option valuation techniques, using our user-friendly ROG software that can graphically depict an option map for the structure of the problem, the Real Options Group can help its client managers visualize, quantify and optimally exercise the strategic options that their intuition tells them can be quite valuable. In fact, managers can examine different project design structures and influence the course of events, project riskiness and value realization through guided managerial intervention.