Effective budgeting at the project level is essential for maximizing value, managing risk, and ensuring that resources are allocated where they will have the greatest impact. The Real Options Calculator (ROC) empowers project teams to right-size budgets dynamically, based on real-world uncertainties and evolving business cases.

Key Principles

• Dynamic Budgeting:
  Move beyond static, upfront budgets. Use staged investments and checkpoints to allocate resources as uncertainties are resolved and new information emerges.
• Scenario-Based Planning:
  Model optimistic, pessimistic, and most-likely scenarios. Quantify the financial impact and resource needs for each, ensuring that budgets are robust yet flexible.
• Defer Major Investments:
  Structure your project so that significant expenditures are only committed once key assumptions have been validated, minimizing risk and enabling “fail fast” learning.

How to Budget with ROC

1. Define Financial Parameters:
   Enter project-specific parameters such as WACC, risk-free rate, and currency in Edit > Project Settings.
2. Map Out the Project Tree:
   Break down your project into sequential and parallel steps, each representing a decision point or uncertainty.
3. Estimate Resource Needs:
   For each step, specify required investment, expected duration, and potential results. Enter operational ressource requirements.
4. Calculate Real Option Values:
   Use ROC to quantify the project value at each step. This informs whether it is worthwhile to invest in the next step.
5. Report actuals and maybe Adjust:
   Once a project step completes, its results can be reported. This tells what next route is the best to take. Adjustments to the business case should only be made if new knowledge justifies this.

Best Practices

• Align budgets with business value, not just costs.
• Use checkpoints to reassess and reallocate resources.
• Document assumptions and update them as new data becomes available.