capital-allocation-frameworklisted

# Capital Allocation Framework > A disciplined process for ranking competing investments and producing a defensible capital plan. ## What this skill is An end-to-end framework that combines quantitative return metrics - Net Present Value (NPV), Internal Rate of Return (IRR), payback, Profitability Index (PI) - with strategic option value and execution risk scoring. It surfaces the efficient frontier of investments, flags portfolio-level concentration risk, and produces a one-page memo a Chief Financial Officer (CFO) or board can actually approve. ## What it solves - Ranking by IRR alone (which is scale-blind) instead of NPV - Comparing projects of different durations without an Equivalent Annual Annuity (EAA) adjustment - Treating "strategic" projects as exempt from financial discipline - Approving full capital up front for unproven initiatives (no stage gates) - Ignoring the option value of follow-on investments ## When to invoke - Annual operating plan or capital expenditure budgeting cycle - Mergers and Acquisitions (M&A) target ranking when multiple deals compete for the same capital - Sun-setting decisions across a product portfolio - Trade-offs between Research and Development (R&D), marketing, and infrastructure investment - Pre-board preparation for any material capital deployment decision ## Phase 1: Inventory the opportunity set Catalog every competing use of capital - including do-nothing, share buyback, dividend, and debt paydown: | ID | Initiative | Spo