How to Quantify the Effects of Innovation?

An Adapted Valuation Model for Innovation! Innovation in IT Consultancy Services.

Innnovation NPV

Working in the IT Consultancy Services Industry for a bit over 20 years, innovation projects have been a major part of my job. Innovation is my passion but I often see innovation projects being approached as an art-form and not as a science. This is often due to limitations of traditional project management techniques and project valuation methods.

The drive to create a new innovation valuation model was triggered by three key questions:

  • Innovation is important but can it be managed?
  • Is innovation radically different compared to existing business processes?
  • Does innovation require special management techniques?

During the research I first defined what innovation is, next I defined a new innovation process model and finally I created a quantification model to put a value on innovation projects.

The innovation process model is based on 5 dimensions and 4 diamonds.

5 D's and 4 Diamonds Model

The 5 D’s

  1. Discovery
  2. Define
  3. Develop
  4. Deliver
  5. Dispose

The 4 Diamonds

  1. Search & Source – Select & Approve
  2. Research – Synthesis
  3. Ideation – Implementation
  4. Market Introduction  –  Market Renovation & Exit

The new model is a extension of a classic NPV model to create the Commercial Risk and Risk Adjusted NPV or CR-NPV

CR-NPV Quadrant

New concepts that were added to the NPV model to enable innovation ROI calculations are:

  • CIR = Cashflow Incurrence Risk
  • COR = Cashflow Occurrence Risk
  • MPR = Market Penetration Risk or Commercial Revenue Risk
  • Failure Avoidance Premium
  • Technology Obsolescence Correction for Opportunity Costs

In the study the concepts were put to the test in a case study and validated through peer reviews. These confirmed the usefulness of the model. All the model’s concepts were considered viable and the acceptance rated from average to fully accepted.

CR-NPV Acceptance

An overview presentation of the research can be downloaded:

Research Gate DOI


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