Glossary of techniques for strategic analysis. This article provides a glossary of analytical techniques, страница 6

The approach is long established and predates the references given by many years.

Hussey, D. E. (1985). Corporate Planning, chapter 6, Gee and Co, London.

Hussey, D. E. (1991). Introducing Coprorate Planning, 4th edition, chapter 5, Pergamon Press, Oxford.

Leidecker, J. K. and Bruno, A. V. (1984). Identifying and using critical success factors, Long Range Planning, February 17(1).

See also: SWOT and equilibrium analysis.

Decision trees

A useful approach which sets out diagrammatically a chain of optional decisions and chance events. Each chance event has several possible consequences, and each consequence may require that different strategic options be considered. The technique allows a complex array of risks and decisions to be charted, and this alone can aid understanding and bring clarity of thinking.

The technique goes further by assessing ®nancial consequences to each change event and calculating the outcomes of all the branches of the tree in ®nancial terms. The combination of probabilities and outcomes along the various courses indicated by the decision allows an expected monetary value to be calculated for each possible ®nal outcome. Quanti®cation is usually in discounted cash ¯ow terms, and the ®nal ®gure aids the process of decision making. As with all techniques the worth of what comes out has considerable relation to the care with which the analysis is undertaken.

I have found this technique to be useful in brainstorming ideas, in communicating complex situations, as well as in analysis.

Hussey, D. E. (1994). Strategic Management: Theory and Practice, 3rd edition, chapter 31, Pergamon Press, Oxford.

Mantell, L. H. and Sing, F. P. (1972). Economics for Business Decisions, chapter 16, McGraw-Hill Kogakusha, Tokyo.

Moore, P. G. (1968). Basic Operational Research, chapter 8, Pitman, London.

Pappas, J. L. and Brigham, E. F. (1979). Managerial Economics, 3rd edition, chapters 3 and 14, Holt-Saunders, Hillsdale, Illinois.

See         also:      discounted          cash       ¯ow        and        risk analysis.

Delphi technique

A technique which is used for developing scenarios of possible futures under conditions of discontinuity. A panel of experts is chosen and asked to complete a series of questionnaires about some future situation. In the second round they receive an analysis of others' views and are invited to defend or modify their own. It is a form of structured brainstorming of expert opinion. The technique, like all `futures' techniques, was more popular in the late 1960s and early 1970s than it is now, possibly because emphasis has changed from forecast-dependent strategy to the management of strategy.

Chambers, J. C., Satinedes, K. M. and Smith, D. D. (1971). How to choose the right forecasting technique, Harvard Business Review, July± August.

Wills, G. et al. (1972). Technological Forecasting, chapter 2±4, Penguin Books, London.

Discounted cash ¯ow

A method of analysing capital expenditures which takes account of the time value of money by discounting future cash ¯ows back to today's value. The analysis is made on cash in¯ows and out¯ows, and provides a good basis for comparing options within a project. The time value of money is compared with the cost of money, usually a weighted ®gure that re¯ects the mix of debt and equity of the ®rm, the aim being to choose projects which offer a net gain over this ®gure.

The technique can be used in a way that takes account of in¯ation. It is also suitable for studying some elements of risk.

Although until recently used for project evaluation, the approach has for many years been advocated as a way of looking at all the strategies ofthe ®rm. Recently,this concepthas ¯owered in the value-based strategy concept.

Discounted cash ¯ow (DCF) demands a careful forward assessment of the project, and cannot be used unless a disciplined approach is taken. Results are affected by the conventions chosen, such as the treatment of residual value. Because of the discounting, this has more impact on the results if the project is evaluated over a short period, say 5 years, than it would if a long period were chosen, say 20 years. Against this, margins of error in the forecasts of costs and income are greater the longer the period chosen.