After we all agreed on the vision, I asked about the two dynamics of the Partnership Continuum. First, I said, let’s talk about the Stages of Relationship Development. Both agreed they hadn’t really gotten along in the past. In reality, they didn’t even know each other very well. I asked them if they met frequently to discuss issues of mutual concern. I wasn’t surprised to hear that they rarely even talked to each other. So I asked them what they could do to improve their relationship. Marty surprised me: “I think it would be helpful if we got to know each other’s operations.

Maybe there’s some way we can work together to solve our issues.” Jean immediately responded by suggesting they meet one afternoon the following week to talk about how they each accomplish their tasks. The following week we met again and both Jean and Marty reviewed how they scheduled and accomplished their tasks. One of the first things Jean noticed was that there was no coordination between cleaning the rooms and maintenance work. She asked Marty what time he received his list of guest room maintenance jobs. “First thing in the morning, about 7:30,” he said. The job orders were collected by the chief operator and given to him. He then passed them out to the maintenance engineers. We were well on our way to identifying the needs.

Financial decisions affect everyone. They should not be left entirely to the “experts” in the finance department or among specialist advisers. Financial issues and techniques – such as dynamic cost management, the importance of cash flow and the time value of money – affect all managers with a financial responsibility and are influenced by everyone.

Make financial expertise widely available Every manager in the business should understand the importance of financial management for profitability and success. People need to feel ownership of their part of the process of financial control, to have the information and expertise to make the best financial decisions and to consider all relevant decisions from a financial perspective.

Decide the discount factor: the percentage that will be deducted from each year’s cash flow. Determining this is central to the whole exercise. A higher discount factor will generate a lower overall valuation. Typically, two things influence the level of the discount factor. The first is the level of business risk. If the risk is high (and the investment is unlikely to meet its projections), the discount factor should also be high. Second, there is often a compromise between the cost of borrowed money (such as 5% interest) and the return expected by the investors (for example, 15%); in this case, the discount factor would be 10%. It may be desirable to select a range of discount factors, providing optimistic, realistic and worst-case scenarios.

Apply the discount factor to the net cash flow for each year of the projection and to the terminal value. The figures resulting from these calculations are the present value contribution of each year’s future cash flow; adding these values provides a total estimate for the value of the investment.