You can download the Project Valuation Model ™ for free by clicking here.
«Price is what you pay. Value is what you get.» ― Warren Buffett
In order to assess project opportunities and make difficult trade-off and priority decisions about where to focus your limited resources, you need to be able to compare projects on a like-for-like basis.
And since there’s just no getting around the fundamental challenge that all organizations should be sustaining themselves, at some point the projects we invest in should create value.
Therefore, you should make project valuation — estimating the value of your projects — a part of your decision-making process.
So what is the value of a project? It’s simple:
Value = Benefits − Costs
But reality is not so simple. Project valuation is a combination of art, science, and craft.
Many have tried to translate project valuation in a “fits all” framework, methodology or process. After more than a decade of doing project valuations, I’m of the opinion that this is a futile exercise. The reality is just different.
What has really helped me over all these years is something a little different: a conceptual model of project valuation and the steps it typically goes through.
The Project Valuation Model ™ is such a conceptual model. Where a mental model captures ideas in a problem domain, a conceptual model represents “concepts” and relationships between them.
A conceptual model in the field of computer science is also known as a domain model. The aim of a conceptual model is to express the meaning of terms and concepts used by domain experts to discuss the problem and to find the correct relationships between different concepts.
A conceptual model acts as a key artifact of business understanding and clarity. The concepts of the conceptual model can be mapped into actual implementations that will be different for each organization and project.
My conceptual model for project valuation is displayed below.
You can download the Project Valuation Model ™ for free by clicking here.