Important questions to ask when reviewing an analysis

Over the years I have had the opportunity to participate in many, many valuation exercises.  I have been asked to review or assist with many more.  In time, I have built up the following list of "review concepts" -- questions to ask and things to look out for when checking out somebody's work.  It's a good list to check my own work, too.

I'll just dump the list here, and maybe add some commentary in the comments.

Sources of Data

• Are all sources for inputs cited, with the name of the source and the date of collection?
• Is the data still recent?
• Do the numbers align with commonly accepted inputs from other sources, especially those that are "company dogma"?
• Is there good, historical research to support the forecasts?
• When estimating market sizes, are the market segments in the model defined specifically enough to be meaningful?

Time Horizon

• Does the model forecast the full spending horizon (or is there a spending hockey stick that occurs just after the model cuts off)
• Does the spending model comprehend all required spending (or just direct spending in this organization), common pitfalls I have seen in the past include:
• make sure you don't forget software spending!
• make sure you don't forget support spending!
• Does the model exclude terminal value (there is no excuse for terminal value these days)

Uncertainty

• Is there a "Tornado"?
• are the drivers of critical uncertainty at the top of the tornado well understood?
• Are all the "usual suspects" present in the tornado?  From my experience, these are:
• Market Share
• Price
• Completion Date
• Do all of the important inputs have ranges defined for their inputs?
• Is the Prospect start date (first volume) mechanically tied to the Project completion date (it should be!)

Interdependencies

• Are key dependencies on other programs or investments comprehended?
• Are major sources of risk external to the program identified?
• "Roadmap Risk" -- the risk that key ingredients from other partners will not be done on time or will be cancelled outright.
• "O/S Risk" -- the risk that the assumed operating system for the product will be irrelevant by the time it's done
• Competitive Risk -- the risk that a new competitor will appear, or that an existing competitor will change strategies
• Technical Risk -- the outright risk that we won't be able to complete the product at all.

Business model drivers (for new ideas)

• Is the value proposition for the product or service well understood?
• Do we understand what our customers want and how to reach them?
• Is the cost structure realistic?
• Are there regulatory issues we need to be aware of?
• Is the idea easily digestible by customers/management?