Business cases and semantics

[Jasandjules]

I would certainly include diversification in the risk/reward section, setting out why sticking to A could be a problem i.e. downturn in that sector or whatever... And the same for B....

[akirk]

okay - that gives a different perspective - on reading your OP it could appear that you had a diverse market for both projects, but different markets - e.g. selling to buyers of model railways and those with an interest in playing football - two quite different markets...

However what you are saying is that there is potentially one worldwide market and project A & B is about different segmentation within that one market...

In which case as others say:
- keep milking the profits you can in Market A - Japanese purchasers
- start to build Market B to spread risk and over time grow the profit

your current approach is high risk

[muppetdave]

13m said:

So, I'd basically be saying something like, "short-term profit favours option A, however when diversification into a new market is taken into considertion, option B appears the more attractive option".

Late to the party, but... depending on what is set out strategically (if you're fighting against it or not), I'd maybe even include a 'whatif' scenario...

1 - T/o and profit when established of running existing business + A, same with B
2 - T/o and profit when established if one market fails/is closed etc. Where is the business now etc.

[Dr Jekyll]

muppetdave said:

Late to the party, but... depending on what is set out strategically (if you're fighting against it or not), I'd maybe even include a 'whatif' scenario...

1 - T/o and profit when established of running existing business + A, same with B
2 - T/o and profit when established if one market fails/is closed etc. Where is the business now etc.

That's a good point. Forecasting on the basis of 'whatever is happening to the markets will continue to happen in the future' makes things look promising. It's when we look at possible scenarios that we look vulnerable.

[muppetdave]

Exactly that - all too easy to make a case look great for growing in either direction, but what's your fallback position. When you're countering a 'same market' tactic I think that position becomes ever more critical.

I have it with a client at the moment whereby we're pressing forward on a project in an existing market (circa 80% total turnover) to offer a totally different (but related) service - it's a great move as it positions us brilliantly with clients and could almost be deemed a sales tool for the main business. However we're also diversifying in to new markets to try and decrease that 80% and spread the risk - one swoop by the Government's axe and they could be somewhat pinched!

[sealtt]

You are trying to make qualitative arguments for diversification to people who clearly only pay attention to numbers. In any case, diversification is not some intangible value, so should not be presented as such. You need to run the numbers properly, including valuing the diversification, that will give the business decision makers a more accurate ROI to consider, when considered in terms of the business as a whole, not a standalone project.

I don't know anything about the business you are involved in to make any judgements about the level of correlation between option A, option B and the existing business, in other words how diversified they actually are, but I'm sure you can work it out and if the diversification is simply geographical then you could use Japanese vs New Country risk curves. You can then run scenarios showing the reduction in exposure to any specific risk and the diversified option B will now have a more favourable ROI due to the value of diversification it brings to the business as a whole (due to the benefit diversification brings in risk weighted NPV calculations).