3 Posts found for Author: Sebastian Stange

Depending on the structure of a company’s investment portfolio, decision makers may need to apply different criteria in order to highlight differences in the value drivers of various investment types. For example, a strict focus on internal rate of return and payback time may systematically favor incremental improvement investments at the expense of larger breakthrough investments that tend to have longer-term and uncertain payoffs.

The process … [ Read more ]

Authors: Sebastian Stange, Ulrich Pidun | Source: “The Art of Capital Allocation” | Original Publication: Boston Consulting Group | Subjects: Finance, Management, Strategy

In theory, there is a simple rule for choosing among competing investment projects: sort the list of projects based on their expected internal rate of return and select those with the highest IRRs until the budget is fully committed. In practice, however, the effectiveness of this approach is constrained by the quality of the assumptions that go into the valuations and by the influence of … [ Read more ]

Authors: Sebastian Stange, Ulrich Pidun | Source: “The Art of Capital Allocation” | Original Publication: Boston Consulting Group | Subjects: Finance, Management, Strategy

One of our clients, an international energy company, which classifies business units as development, growth, anchor, or harvesting businesses, depending on their position in the market life cycle. Each portfolio role has its own performance requirements, and businesses are managed based on specific sets of financial indicators. More important, the role of each business determines its guidelines for capital allocation. For example, coal power generation … [ Read more ]

Authors: Sebastian Stange, Ulrich Pidun | Source: “The Art of Capital Allocation” | Original Publication: Boston Consulting Group | Subjects: Finance, Management, Strategy