An Adapted Valuation Model for Innovation! Innovation in IT Consultancy Services.
![Innnovation NPV](https://www.vanderbist.com/wp-content/uploads/2021/04/Innovation-NPV-1-1024x379.png)
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](https://www.vanderbist.com/wp-content/uploads/2021/04/5D-4-Diamonds-Model.png)
The 5 D’s
- Discovery
- Define
- Develop
- Deliver
- Dispose
The 4 Diamonds
- Search & Source – Select & Approve
- Research – Synthesis
- Ideation – Implementation
- 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](https://www.vanderbist.com/wp-content/uploads/2021/04/CR-NPV-Quadrant-1024x494.png)
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](https://www.vanderbist.com/wp-content/uploads/2021/04/CR-NPV-Acceptance.png)
An overview presentation of the research can be downloaded: