Decision Guide

Agency Decision Guide

A practical presales guide for running the CAPM model: set baselines, score the current environment and the deal, compare proposed margin to the hurdle, then decide whether to proceed, reprice, or sell discovery first.

Quick route through the cards

Enterprise / global agencyStart with Layer 1portfolio and macro conditions first
Small / mid-sized agencyStart with Layer 2score the deal before delivery planning
Mission-driven / B-CorpAdd Layer 3after the financial hurdle is clear
Decision ruleGo / Reprice / Discoveryor walk away when the risk stays wrong

1. Set the baseline

Use the current defaults or your own margin benchmarks.

2. Score what is real

Name the portfolio and engagement risks before the team imagines delivery.

3. Make the call

If the hurdle is not clear, reprice, sell discovery, or decline the work.

Use this when you want the procedure rather than the theory. It tracks the current decision logic in the decision cards.

Reading order

This Decision Guide is best after the Walkthrough. Next open the Decision Cards. The Calibration Notes and Theory documents are deeper dives into CAPM and how it's used here. If you want a simpler guided alternative, smaller agencies can use the Small Agency Version.

Open the Decision Cards Overview TL;DR Walkthrough Calibration Notes Discovery First Theory

CAPM for Agencies — Decision Guide

Purpose

Use this as a repeatable presales workflow for:

  • setting a required margin
  • checking whether a specific deal clears it
  • making go, caution, or stop decisions before commitment

The hook is still "price before you plan," but in practice that means price before delivery planning is committed, not before the solutions team has done enough technical assessment to price responsibly.

CAPM in one sentence: it is a finance model for deciding what return is worth a given level of risk. In this agency version, it helps you separate portfolio risk from deal risk, set a minimum acceptable margin, and decide whether the work deserves a yes at the quoted price.

Run the workflow in the decision cards:

Who Should Start Where

For enterprise and international agencies, the pure approach is often the cleaner governance model. It keeps systematic exposure at the portfolio level and treats engagement risk separately through contingency, structure, and escalation.

For small and mid-sized agencies, the hybrid approach is usually the practical starting point. When a single engagement can still damage the whole book of business, folding deal-specific risk into the pricing hurdle is often the more honest move.

Inputs

You need five commercial inputs:

  • Agency Rf: margin from your lowest-risk work
  • Portfolio Rm: average margin across project work
  • Layer 1 factor: the current systematic environment
  • Deal Price
  • Estimated Delivery Cost

Step 1 — Set Your Baselines

Agency Rf

  • use the margin from your safest, most predictable revenue
  • typical examples: retainers, maintenance, contracted support

Portfolio Rm

  • use your average project margin over the last 1 to 2 years
  • if internal history is weak, use the best benchmark you have

Risk premium

  • Rm - Rf

Step 2 — Calibrate Layer 1

Score the six Layer 1 factors in the Layer 1 card:

  • platform stability
  • talent market
  • economic conditions
  • regulatory exposure
  • revenue concentration
  • rate pressure

In the decision cards, the combined Layer 1 score maps to a systematic adjustment factor:

  • 6 maps to 0.85
  • 18 maps to 1.00
  • 30 maps to 1.15

This factor sets the pricing environment for every engagement.

Step 3 — Score Layer 2

This is a presales risk assessment, not full delivery planning. In the Layer 2 card, you want enough solutions-team input to price responsibly: technical complexity, client concerns, scope shape, and capacity pressure. If implementation still cannot be priced confidently, the right next move is to price a discovery phase first.

Score the seven engagement factors:

  • client track record
  • scope clarity
  • technical complexity
  • internal capacity
  • contract type
  • political complexity
  • timeline pressure

The Layer 2 card produces:

  • Engagement Score out of 35
  • Engagement β = Score / 21

Step 4 — Calculate The Hybrid Hurdle

Use the current hybrid formula:

  • Blended β = (Engagement Score / 21) × Layer 1 factor
  • Required Margin E(R) = Rf + Blended β × (Rm - Rf)

This gives you the minimum acceptable margin for the deal.

Step 5 — Check The Actual Deal

Enter:

  • Deal Price
  • Estimated Delivery Cost

Then calculate:

  • Proposed Margin = (Price - Cost) / Price

This is the critical decision step.

The model is not complete when you know the hurdle. It is complete when you compare the proposed margin to E(R).

Step 6 — Decide

In the current decision-card build:

Outcome Condition Action
Go proposed margin is at or above E(R) proceed
Caution proposed margin is within 3 margin points below E(R) reprice, reduce risk, or change structure
Stop proposed margin is more than 3 points below E(R) decline or materially renegotiate

Also check the price floor needed to clear the hurdle. That gives you a concrete repricing number, but it is only a margin-clearing floor, not proof that the deal carries enough absolute gross profit dollars to be worth doing.

Step 7 — Use The B Corp Overlay When It Matters

If you are using the B Corp card, do one more pass:

  • score the B Corp portfolio factors
  • score the B Corp engagement factors
  • review the impact adjustment
  • compare the proposed margin against impact-adjusted E(R*)

In the current decision-card build, the B Corp card keeps the standard hurdle visible, then shows how mission discount or harm premium shifts it up or down.

The current calibration is intentionally moderate:

  • the B Corp portfolio score is neutral at its midpoint and only widens or narrows the adjustment around that center
  • each B Corp engagement point away from the midpoint is worth about one margin point before the portfolio modifier is applied

If you want the implementation details and sanity-test scenarios, read the calibration notes.

Step 8 — Use The Pure Approach Correctly

For the pure approach:

  • treat the Layer 2 score as a risk index, not as CAPM beta
  • use it to size contingency, shape contract structure, and flag delivery risk
  • use the Layer 1 environment to set the portfolio-wide hurdle

If you want adjacent standards language for that split, compare PMI on contingency reserve analysis, the GAO's Cost Estimating and Assessment Guide, and AACE's Guide to Quantitative Risk Analysis. They all push in the same direction: make uncertainty, assumptions, and reserve logic explicit instead of hiding them in arbitrary padding.

Pure-approach hurdle:

  • E(R) = Rf + Layer 1 factor × (Rm - Rf)

Then still compare the proposed deal margin against that hurdle.

Governance Note

This is a heuristic pricing-governance tool, not a statistically correct pricing engine.

Its practical value is:

  • internal alignment
  • presales discipline
  • postmortem calibration

The real win is not mathematical precision. It is forcing sales, solutions, delivery, and leadership to name risk in a shared way before committing.

Outputs

Every evaluated deal should leave with:

  • a required margin
  • an impact-adjusted margin if the B Corp overlay is in play
  • a proposed margin
  • a margin gap
  • a price floor to clear the hurdle
  • a documented go, caution, or stop decision