The cost of capital of a portfolio of outsourced services
The ideas in this post are based on the work of Chris Verhoeff, a professor at the Dutch Free University in Amsterdam. More of his work you can find here . I made some minor adjustments, but most of this post is based on his work. The reason I wrote this post is that I use his ideas in approaching sourcing decisions from a more strategic risk-return perspective (I’m now working into the direction of combining this approach with option pricing principles to get a more advanced financial approach). Even though only a very few will find this post usable, those one or two out there might help it in your search for knowledge. The cost of capital of a portfolio with outsource contracts. Some outsourcing contracts in the portfolio will be successful and add value and some of them will not. This needs to be accounted for when setting overall thresholds on potential returns. The threshold for each outsource agreement needs to be at least the Weighted Average Cost of Capital (WACC), plus the av...