In the remainder of this section you will find an extended illustration of business case value analysis. The illustration begins with a short case that describes a new pharmaceutical product - an anticoagulant - that shows promise in the health care market for certain types of major surgery. The case contains the data needed for a business case value analysis of this new drug vs. the anticoagulant that has dominated the market for many years.
You will first have a chance to look at the case. That will be followed by two sets of value analyses, one using a total value-in-use approach to value analysis, the other using a differential value-in-use approach. Both are valid approaches. You would do well to learn how to do both.
Both approaches share the same objective of developing a good estimate of a product's differential value-in-use when compared against the customer's next best alternative. Both, in fact, should come up with the same final estimate of differential value-in-use. The two take different routes to get there, however. You could say that the total value-in-use analysis takes the long road, while the differential approach takes a short cut. Once you get good at taking the short cut, it can usually get you there with less work and less ambiguity.
As its name implies, with the total value-in-use approach, you first estimate the total value-in-use of each of the two competing product alternatives. Then you subtract one from the other to get their differential value-in-use. With the differential value-in-use approach, you skip the "total" stuff and take a more direct route. You focus just on the differences between the two competing alternatives. You estimate the financial impact for customers of each of those differences. Then you add up all these different financial impacts. That gives you the differential value between the two.
When it comes to learning the ropes of business case value analysis, however, it is a good idea to learn both approaches. Therefore, we'll do the analysis both ways in the case illustration that follows.
Read the Baker Pharma Case here.
Download pdf files of the Baker Case and Value Analyses here:
Baker Pharma Case
Total Value Path
Differential Value Path
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