rNPVRisk-adjusted Net Present Value
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Most participants felt that the process was extremely political, with a project's future determined by how well its proponents lobbied for a higher rNPV in the meeting.
In HealthPharm's case, the metric being used, rNPV, rewarded projects that had low costs, low risk, and short-term sales.
He picked three metrics that could be used along with rNPV to assess the balance of the portfolio:
He shopped these metrics around to the executives, and there was consensus that the future revenue target best aligned with what they wanted from the portfolio and should be considered along with rNPV. Revenue was frequently discussed in leadership circles, and the revenue target was very important to the CEO.
A recent internal study by one of our other pharma clients determined that cutting 20 percent of their lowest-performing projects would increase the rNPV of the portfolio by 25 percent.
This may have been because it was implicitly assumed that rNPV adequately reflected the company's strategic objectives.