Critical Assumption Planning – a tool for managing risk
Venture capitalists earn good portfolio returns even though as many as 6 of 10 venture starts fail or fall short of expectations. How? They make investments in steps. Each step is measured by some specific accomplishment or “milestone” that will test a significant business plan risk. Using this funding approach, the venture capitalist limits his risk by investing only enough cash to learn the answer to a key uncertainty.
Critical Assumption Planning (CAP) is a risk management process that adapts the venture capital milestone concept as a five-step process. The process is designed to be used by teams operating in a corporate environment and provides a tighter focus for the now familiar stage/gate process.
CAP helps development teams focus on the key business uncertainties in their project very early. In doing so, they can apply limited resources to testing these uncertainties quickly, thereby avoiding wasted time and development dollars, should the venture prove unsound.
To view the CAP process in more detail, please view the CAP Methodology page.