There are much simpler approaches, but here is a comprehensive approach.

Step 1: Consider what programs you use and hypothetical examples of how you might use points in those programs.

E.g.,
Round-the-world airline awards
International First Class Airfare
Domestic Business Travel
Flight upgrades
Last-minute travel
Instances when you want refundable tickets
Unusually Expensive Flight Routes (e.g., to exotic islands)
Transfer miles to another program (e.g., AA to Hilton)
Week Long Stays at Resorts
Regular Hotel Stays in High-end properties
Regular Hotel Stays in Low-end properties
Gifts or trades of any of the above for friends and family

Step 2: Ask yourself, which of the awards am I likely to use? E.g., do I want to travel internationally? Do I want to fly in business class? How likely am I to be able to use an award when I want it? (This last question is tricky -- it requires lots of experience, research and some assumptions about the prospects of future devaluation of your program points).

So you narrow the list of potential awards to what you think you might realistically use.

Step 3: Ask yourself "For realistic scenarios, what would I be willing to pay in cash for those items v. what do they cost in miles or points"?

Step 4: Take What you are willing to pay and divide it by the number of miles required. That gives you an (initial) nominal CPM; typically this is $.01 to $.03 for most programs.

Step 5: Adjust the nominal CPM downward for the following factors:
a) Chances of miles being devalued, expired or disintegrated before use.
b) Chances that you might never use the miles (e.g., due to death).
C) Miles don't earn interest and can't be invested or used for collateral like money can.
d) Purchases made with miles aren't tax-deductible even if used for business or charity.
e) Miles awards don't earn miles.
g) Awards in many programs don't get elite upgrade even if you have status (e.g., hotel rooms typically do get upgrades, but airline seats typically don't).
h) When you pay with cash you get points on your credit card
i) Hassle of finding award routes
j) FEES, FEES, FEES associated with awards in some programs

Remember, to factor in that the award you want might not be available, especially if you need to redeem the award for multiple people.

Step 6: Adjust the nominal CPM upward for the following:

a) Changes and cancellations to an award airline ticket are often less expensive than changes to a regular ticket.

Step 6: So, you come up with your set of real CPMs typically ($.005 to $.025).

Then, on a trip-by-trip basis, you ask yourself:
a) What would it cost me if I used points?
b) What would this trip cost me in cash if I didn't use points?


Step 7: You continually revise your numbers as you get new data based upon your experiences, experiences of others and hypothetical scenario testing.

In practice, you will come up with many interesting applications, such as:

"Wow, this is a great deal on an award redemption, but I think I am going to just stay at a friend's house instead."

"Wow, I am not spending my miles fast enough, I need to lower my CPM thresholds"

"Hmm, what is the added value for me of staying at the Mariott for this trip versus a random 4-star hotel in the vicinity that I would get on Priceline?"

"Wow, I need to fly international first class on an award ticket, I am going to plan a trip with that as one of my goals"