- Applications and ROIs
- Why ROIs Matter
- The Business Case
- Cash Flow ProjectionsThe Business CaseWhy ROIs Matter
- Payback Time
- Breakeven Time
- Net Present Value
- Breakeven Time
- Internal Rate of ReturnBreakeven Time
- Summary of the Terms
- An Example
- Incorporating MMFs into the Financial Case
- Comparing the MMF-based ROI with the Classic ROI
- Taking the Risks into Account
- The Impact of MMF Ordering
- Summary
- References
This chapter is from the book
This chapter is from the book
This chapter is from the book
Taking the Risks into Account
This financial analysis has by necessity been oversimplified. Several variables were not taken into account. One of the most important of these is risk.
In general, incremental delivery has the benefit of reducing overall project risk. But for this to be both demonstrated and measurable, it's necessary to implement a mechanism for taking risk into account in an MMF context.
The quantification of risk has an immediate impact on the perceived value of an MMF and must therefore be factored into the financial equations. We may decide, for example that an MMF yielding $1 million in two years' time at 90% risk is less valuable than one yielding $500,000 in two years' time at 10% risk. Of course, this raises the important question of what is meant by 90% risk and 10% risk.
There are many approaches to handling risk assessment in complex projects, and in fact much has already been written on the topic. The approach that we adopt is more fully explored in Chapter 3.