Modern Concepts for Real Options Project Options Business Model Options Accelerated Financial Growth |Who can benefit |What participants will learn |How will participants learn? |Materials |General Description |Course Details |Instructor |What others have said |Registration information |Investment Science

Investment Science for Industry, pioneered at Stanford University and applied at some of the most successful Silicon Valley companies, applies modern financial methods to important decisions in firms. It provides a coherent framework for design and selection of projects, use of project options, and consideration of alternative business models. This popular two-day course introduces these powerful new methods using simple concepts and several real-life examples.

Executives, financial analysts, and project managers will benefit from the insights and methods presented in this course. The methods are useful in almost every field, including high-technology, utilities, financial service organizations, and manufacturing companies.

• The power of options
• The three principles of value
• The value of a decision map
• How to benefit from uncertainty
• Proper ways to discount
• How to analyze options with a spreadsheet
• How actual projects have been improved with investment science

• By clear explanation of principles and methods
• By worked examples and cases
• By hands-on work with examples
• By discussion of examples from participants' companies

Participants will receive textual material and copies of all lecture transparencies. In addition, participants will receive a computer disk with software suitable for carrying out proper discounting, simulation, and evaluation of real options.

The modern principles of business finance are embedded in the field of Investment Science pioneered at Stanford University by Professor David G. Luenberger. The new methods of investment science can be applied to the problems of any industry:business problems at all levels, including issues of project design, growth strategy, risk management, and a variety of operational problems. In fact, the principles of investment science are applicable to any area where financial return is an important consideration.

The new principles of finance provide greater clarity and accuracy of financial evaluations. In addition, they often show how values can be substantially increased by use of options and other structuring techniques. The Stanford program, working with industry, has shaped these new principles so that they are expressed in simple terms, but still support the full potential of project options, business model options, risk reduction, and growth enhancement.

The course presentation is a balance between broad concepts and actual methods that can be used in practice. Examples are presented that illustrate both the concepts and the methods. Participants are given the opportunity to apply the material both in conceptual form and as actual computation with spreadsheet analysis.

Day 1:

• Morning
  

  Introduction and overview

  • The recent revolution in financial theory and practice
  • The field of Investment Science
  • Fundamental principles of valuation

  Real options and strategy

  • Structuring with options
  • Harnessing uncertainty to increase value
  • The three sources of option value

  Valuation

  • Present value as a standard
  • The two-rate method of discounting
  • A semiconductor fab example
  • Spreadsheet analysis

  Frequently asked questions: My firm tries to attain an effective 20% rate of return on equity (ROE). Should I ever use a discount rate less than that?   Answer: Yes, often you should, and investments that have positive value at the proper rate will increase the effective ROE.

• Afternoon
  

  Uncertainty basics

  • Expected value, variance, and covariance
  • Private and market risk
  • Wall Street models of stock prices
  • Price processes

  Lattice methods

  • The risk-neutral world
  • Transformation to risk-neutrality
  • Application to stock options
  • Breakout session on lattice methods
  • Gold mine example

Day 2

• Morning
  

  Risk-time discounting

  • Market and private risk
  • Continuous models of price

  Simulation methods

  • Monte Carlo simulation
  • Breakout session on simulation
  • Examples

• Afternoon
  

  Additional Applications

  • Cell phone product
  • Acquisition
  • A contracting example
  • An example with competition
  • Group discussion on applications

Professor Luenberger is in the Department of Management Science and Engineering at Stanford University. He is the author of five major textbooks. Professor Luenberger has consulted for several corporations including Citicorp, Hewlett-Packard, and Applied Materials. He also served as technical assistant to the President's Science Advisor in the Office of Science and Technology, Washington, DC. He is a fellow of the Institute of Electrical and Electronic Engineers. He was awarded the Bode Prize and the Oldenburger Medal. In 1999 he received the INFORMS expository writing award for his textbooks.

Professor Luenberger will be assisted by other instructors who will present cases and help participants with individual hands-on examples.

• "Great insights and practical approaches for anyone interested in the relation between markets and decisions — taught in a unique and creative manner." — Nick V. Arvanititis, CEO, IDEA GmbH. Former CEO, Sequus Pharmaceuticals
• "Very informative and offering genuinely new insights into important problems." — Paul McEntire, Chairman, Skye Investment Advisors LLC
• "Breakthrough organization of very important theory." — Lloyd Nirenberg, Vice President, Diablo Ventures Co., LCC
• "If you care about how to evaluate risky projects, you need to attend this." — Harry Saunders, Director, Decision and Risk Analysis
• "Ground-breaking; could well transform the way our projects are valued." — Dan Granirer, Merrill Lynch