For all leadership and management good read. The metrics are good, however the use to determine management decision tools is faulty.
Excerpt: Many conventional metrics we use to estimate value are based on faulty assumptions. Net present value [NPV] is a case in point. The logic of NPV is to project cash flows into the future and then discount those flows back into today’s dollars at a given cost of capital. Given that money today is always worth more than money in the future, you are trying to establish what the future value of the investment will be in terms of that money’s value today. If it is positive, it’s thumbs up, if it’s negative, it’s thumbs down.
One problem is that NPV calculations tend to compare today with some future state. What they should be used for is to compare today with two different future states: one in which we do nothing and one in which we do something. Doing otherwise biases the business against innovation because what you are projecting may look unattractive relative to your business today.
Read full article via Columbia Ideas at Work : Feature. From Columbia Business School
