Syncopation Software

Strategy Must Evolve

Quantify & Capture the Value of Flexibility

The Value of Flexibility is a well-defined concept that can be calculated directly and transparently with DPL

The focus of strategic decision analysis is rightly on the choices that must be made now. But too often a simplistic, narrow frame of the situation filters out the critical dynamics of the strategic environment. If management flexibility and options are ignored, the analysis unfairly penalizes alternatives that keep the organization's options open and sow the seeds of future opportunities. The strategic alternative that maximizes value may not be the one that doubles down on the opportunity that looks most rewarding now, but rather a shots-on-goal approach that embraces uncertainty and seeks to be ready to capitalize on multiple possible futures.

Hard-nosed analysts have learned to be skeptical of vast, unquantified chunks of "strategic value" espoused by project advocates, often with arm gestures and inspirational oratory. But with rigorous modelling and powerful decision tree software, there is no need to take these claims on faith. The value of flexibility (sometimes called "option value") is a well-defined concept that can be calculated directly and transparently in a DPL decision tree. Ad-hoc, unjustified fudge factors for strategic value are obsolete.

1

A deterministic analysis

Nodes:
  • Upfront decision
Results & insights:
  • Best alternative if we can predict the future (good luck!)
2

An elementary strategic analysis

Nodes:
  • Upfront decision
  • Quantified uncertainties
Results & insights:
  • Best alternative, assuming we have no ability to react to events
  • Estimate of risk in the alternatives (may be an overestimate)
3

A dynamic strategic analysis

Nodes:
  • Upfront decision
  • Quantified near-term uncertainties
  • Quantified near-term learning
  • Downstream decision ("option")
  • Quantified longer-term uncertainties
Results & insights:
  • Best alternative with real-life assumptions
  • Estimate of risk in the alternatives
  • Estimate of the value of flexibility ("option value")
  • Strategic map telling us when to change course

Accept no substitutes! A rigorous strategy comes with a roadmap for the future. Adjusting course decisively leads to realizing strategic value.