What it is for

• To judge one investment on its own terms — before any comparison with others: is enough at stake, does the investment do enough about it, and is what it achieves worth what it costs.
• The near end is a stated basis — every judgement here is a comparison, but rarely with another project.
  • Against the alternative: what happens if the investment is not made.
  • Against its price: what it achieves per unit of capital it consumes.
  • Against a threshold: the line you are prepared to accept, stated rather than felt.
  • Against the other candidates — last, and only where several compete for the same capital. A yield is no unit for that comparison once protection is among them.
• The end is the decision, and it takes three forms.
  • Whether at all — is enough at stake, and does the investment do enough about it.
  • Whether like this — is the design efficient enough, or does it go back for one that reaches the same objective with less capital.
  • What first — where several compete, the order in which limited capital is committed.
• What follows the decision — the money committed, the measure built, the plan run — is already outside this tool, and so is everything that follows from it.
• Naming the alternative — carry on, or stop — is the one step this tool cannot take for you. It belongs to whoever owns the operation, and it decides which of the two assessments is the honest one.

What it provides

• The rule that picks the assessment — what the world looks like if the investment is not made.
• The same three questions, in either currency — each answered in the unit that route works in.
  • Should it be done? DCF: NPV positive and IRR above the threshold · Risk: Ra high enough to matter and NR above the threshold.
  • Is it good enough as designed? DCF: IRR above the hurdle · Risk: CER above the hurdle.
  • Which one first? DCF: by IRR · Risk: by Ra and CER.
• Two instruments that never mix their numbers — one discounts cash, one scores risk; neither result is pushed into the other's ratio.

What you can get out of it

Depending on the route — not every question needs both.

• DCF: present value, net present value, payback and internal rate of return, from a handful of value drivers rather than from a full plan.
• Risk: the risk as it stands (Ra) and as it would stand (Rb), what the measure removes (NR), and what it removes against a damped cost (CER).
• Options for one risk, side by side — what each removes, what each costs, and therefore which one is the smarter buy rather than merely the safest.
• A ranking, where several compete: by IRR on the one side, by Ra and CER on the other.
• A stated assumption wherever judgement entered — the drivers, the scores, the threshold; each visible, and therefore arguable.

What it reflects

• What is available: cash-flow estimates, capital budgets, engineering judgement, people who know the plant.
• What inhibits: a mandatory investment that no yield can justify; protective measures competing for the same capital with no common measure; a discussion that stalls at "we have to anyway, so why calculate".
• Each arrives dressed as a financing question and is a judgement problem underneath: what is at stake, how much of it the measure removes, and what that removal is worth.

Why it works

• A stated basis earns the judgement, a measure that can be defended earns the decision. Every demand below serves one of the two.
• Effectiveness — how much of the question is actually answered: the alternative named instead of assumed, the risk scored before and after, the driver stated rather than buried in a plan.
• Efficiency — how easily it is reached: few inputs, results that follow by themselves, options beside one another, the whole case in one file.
• Coherence by construction — the two currencies never meet in one number, every option is scored against the same risk, and the threshold is stated rather than implied.

Two ways to use it

As a working tool, in the hands of a trained strategist — the senior strategist of the entity, say — who knows the method and drives it alone or with a small team.

Or, and this is where it is worth most, in a workshop moderated by such a specialist, or by us. Because the tool runs online, that workshop works over a collaboration platform (e.g. Teams®) as well as it does in a room.

The operating steps of each instrument stand on the instrument's own pages, under What this does and how to use it — what the page produces, in how many steps, and the rule that governs it. What follows here is what those pages cannot say for themselves.

Which assessment, and why that one

• Ask what happens if the investment is not made. The operation continues → DCF. The operation terminates, or the licence goes → Risk.
• The decision itself can wait, and a choice is genuinely open today → Real Options.
• Mixed cases exist: a measure that is mandatory and improves throughput. Assess it risk-based and record the extra return as a second, separate argument — never inside the same ratio.

Why drivers, not a full plan

• A full plan states absolute figures for every year. The short-cut states ratios — growth, margin, tax, capital intensity, cost of capital — and lets several years share one block, with its own premises beside it.
• That is what it is for: with a handful of premises the effect of every driver is visible at once, and a judgement can be made before a plan exists — or against the plan that does.
• Ratios also travel. Growth, margin and capital intensity can be argued against the sector; a column of absolute figures can only be believed or doubted.
• What moves the value: growth drives it, high profitability and low capital intensity multiply it, and the cost of capital and the horizon decide what it is worth today.

Why effectiveness and efficiency are kept apart

• NR says the measure works. CER says it is worth its price. A measure can be indispensable and still be badly bought.
• Below the efficiency hurdle the answer is not "no" but send it back to the designers — same objective, more creativity, less capital.

Why not simply one measure for both

• A yield measures what an investment adds, against an alternative in which the operation carries on. Where the alternative is that the operation ends, there is nothing to add to — the whole operation would be attributed to the measure, and the rate says infinity about every one of them.
• One measure for both would also compensate without asking: enough return anywhere buys off any exposure. Protection is rarely that generous — thresholds, obligations and knock-outs are the normal case.
• So the currency is chosen, not assumed. The alternative decides it, each side is measured in its own unit, and what is lost in convenience is gained in traceability.
• The argument in full, with what replaces the yield, is in the Enchiridion above, under the risk-based route.

How the three parts fit together

• One decision structure: do it · is it efficient · which first.
• Three currencies: value created, assessed DCF-based, loss prevented, assessed risk-based, and the value of being able to wait, assessed flexibility-based.
• One rule that picks between them: what the world looks like if nothing is done.
• Three instruments, each answering the three questions in its own unit, and never mixing them in one number. The symmetry is the reason they belong in one tool.

Going further

• Background that is not needed to operate the tool — choosing the assessment in depth, thresholds and who owns them, how a case is built, and the theory behind either route — is kept in separate excursus documents rather than here, so that these pages stay working surfaces.

Where the data comes from, and where this begins

• The spreadsheet stops at the number. This starts there.
• Cash-flow figures, capital budgets and loss estimates already exist, in controlling and in engineering. This tool neither collects nor cleans them.
• It begins where figures become drivers and scores: growth and margin on the one side, likelihood and consequence on the other. That translation is the step routinely skipped — great effort goes into producing figures, almost none into deciding what the decision turns on.

Where this tool stops

• The risk is scored, not sampled: no distributions, no simulation. What a score means is your protocol's business.
• The valuation is a driver model, not a financial plan. It is meant to be argued about, not audited.
• It assesses measures; it does not administer them. No register, no compliance documentation.
• Known objection — "risk scores are subjective." They are, and they are written down, so they can be challenged. The alternative is not objectivity but the same judgement hidden inside a yield.