Modeling the Economics of Growth Opportunities

Analysis Group has helped companies in an array of industries evaluate the risks and returns of entering new businesses. We recently helped a client assess the viability of expanding to new segments of the pharmaceutical industry. While the client had access to appropriate technology and key resources, it recognized that being a technology supplier and ANDA filer (generic drugs) was dramatically different from being a business that required even the simplest form of New Drug Applications.

We helped the client validate the viability of this proposed new business venture in four steps. We began by identifying an appropriate set of benchmarks to help assess the likely economics of projects in the new business. We then built an interactive economic model that enabled the assessment of potential portfolios of projects. This model helped the client to understand the "real option" nature of its proposed business. Analysis Group then used the model to identify key success requirements -- primarily how many projects needed to be under way over time in order to achieve business goals. Lastly, we assessed the likelihood that the client could develop a project portfolio adequate to ensure the success of the venture. The results enabled client executives to clearly understand the risks and potential returns of the new venture, as well as the milestones that should be tracked over time to ensure success.