Valuing Intellectual Assets

Transcription

1 Alpbach European Forum 2002 Zest for Enlightenment Valuing Intellectual Assets Z/Yen Limited Risk/Reward Managers 5-7 St Helen s Place London EC3A 6AU United Kingdom tel: +44 (20) Michael Mainelli

2 Agenda Intangible assets COD-VERB Valuation approaches information theory risk/reward options critical sets Issues Synthesis

3 What is Z/Yen? Risk/Reward Managers Improve organisational performance through better choices Clients finance, technology, not-forprofit, business services Work strategy, systems, people intelligence, investment Results Financial Laboratory, stochastic perception engines, NGO measures, ventures fund

4 Risk/Reward Management? Errors using inadequate data are much less than those using no data at all. Charles Babbage

5 Intangible Assets We are a knowledge company Our brand is everything People are our greatest asset Our storehouse of intellectual property is unrivalled Intangible asset value = market valuation - tangible asset value

6 Red Rag to Accountants Cost money spent acquiring and maintaining Ownership clear title Disclosure important to external world Value ability to confirm and replicate valuation through structured methodology and/or benchmarking Existence evidence of scale and activity Responsibility people who know and maintain Benefit ability to estimate measurable value from ownershiop

7 COD-VERB Measurement of intangible assets is crucial to managing them Structured methods of measurement in their infancy Benchmarking difficult Ways forward: information theory risk/reward options critical sets

8 Z/EALOUS Risk/Reward Methodology 2. Assess & Appraise 3. Lookaheads & Likelihoods 1. Establish Endeavour 4. Options & Outcomes 6. Securing & Scoring 5. Understanding & Undertaking

9 1. Establish Endeavour Critical Systems Heuristics Problem Definition Politics New Entrants Mission Society Suppliers Values R/R Behaviou r Buyers Objectives Economics Technology Substitutes

10 Information Theory Quantity increases with volatility Quantity does not equal value Quantity has a quality all of its own

11 Risk (SD) Risk and Sensitivity % % Telecomms Security Fire Services 80.00% Rental Catering Pool Cars Chauffeuring 60.00% Ulities Engineering support Engineering Maintenance 40.00% Cleaning Hire cars 20.00% 0.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% Sensitivity

12 2. Assess & Appraise Risk/Reward Analysis (enhance, keep, sell, forego) High REWARD Low Exploit Key Assumptions Strategic Decisions Defend, Destabilise, Exit First, get the facts, then you can distort them at your leisure. Mark Twain Low RISK High (avoid/eliminate, pool/share/transfer, mitigate/reduce, accept)

13 Knowledge Framework Knowledge you have REWARD Knowledge you don t have Structural Uncertain Strategic Dangerous You know you need RISK You don t know you need

14 3. Lookaheads & Likelihoods 96.37% of all statistics are made up. Kevin D. Quitt Stochastic Approaches

15 Value of Flexibility High Ability to Respond Low Moderate Flexibility Value Low Flexibility Value Low High Flexibility Value Moderate Flexibility Value High Likelihood of New Information

16 Risk/Reward Options Rigorous financial approach Start with basic Black-Scholes equation Integrates with capital financing measures The purpose of models is not to fit the data but to sharpen the questions. Samuel Karlin

17 Value of Volatility Time to expiry Cash flows lost from noncommitment Rf Interest Rate Option Value Investment Volatility (uncertainty) Cash flows gained from commitment

18 $/lb Number of fish e.g., Sockeye Salmon ,000, ,000,000 50,000, ,000,000 30,000, Year ,000,000 10,000,000 - PRICE PER POUND NUMBER OF FISH

19 4. Options & Outcomes Qualitative Prospect Theory; Quantitative Risk/Reward Options Perfect numbers like perfect men are very rare. René Descartes

20 Option Value ( ) Valuing Volatility worth 23% of profit Company B worth 12% of profit Company A -20% -15% -10% -5% 0% 5% 10% 15% 20% Cost Decrease Guaranteed Cost Cost Increase

21 Critical Sets Critical Assumptions Critical Decisions Critical Success Factors Measure Henderson, Rockart and Sifonis, MIT 1984

22 New Patterns & Anomalies

23 Not So Simple...For Another Day Reconciling non-quantifiable risks and information Volatility with decisions, but stability with assumptions Setting knowledge value-added management measures which combine: complexity AND simplicity The future will be better tomorrow. Dan Quayle

24 Synthesis Reward Fundamental Rethink Strategic Invest (enhance, keep, sell, forego) Tactical Exploit Risk Ignore Restructure Divest Cost Emergency Likelihood (avoid/eliminate, pool/share/transfer, mitigate/reduce, accept)

25 Enchance your organisation through a richer appreciation of risk and reward!