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Student Research Forum

Lisa Moore: "Value-based Management"

 Lisa Moore and research poster

Research Category

Simulation /Modeling Research 

Research Purpose

The purpose is to convey the reasons for value-based management and to give a basic review of what these frameworks are useful for in real-world applications.

Research Methodology

I researched material from "Valuation: Measuring and Managing the Value of Companies" by Tom Copeland, Tim Koller, and Jack Murrin. I also studied a sample framework for Valuation made by Dr. Chengho Hsieh and used information gained from discussions with him.

Research Conclusion

Value-based management systems are preferable to profit-based systems because these systems adjust for risk. The goal of any firm should be to maximize shareholders' wealth, to maximize value. Value-based management systems assist a firm in achieving this goal by showing how decisions affect firm value. To implement these systems, companies can use frameworks in which they enter variables such as sales, growth, etc. to compute total firm value. These systems help a company see how a realistic change in variables in their operations will affect the value of the company. They show whether costs are worth benefits.

Social Implications

Each company or consulting firm uses its own version of a value-based framework. The value-based frameworks can be used to do a sensitivity analysis where the company can find which variables affect firm value the most. This sensitivity analysis can help the company know where to allocate more resources for research. These frameworks help with financing, investing, and also in merger and acquisition decisions to see how much they will contribute to firm value. These systems allow the company to obtain the goal of shareholder wealth maximization where, if solely looking at profit, sub-optimal decisions may be made.