Making Strategic Investment Decisions - Real Options Theory and Strategic Cost Management: Two Bottles for the Same Wine?

2010 ◽  
Author(s):  
Giuseppe Marzo
Keyword(s):  
Real Options ◽  
Cost Management ◽  
Investment Decisions ◽  
Strategic Investment ◽  
Real Options Theory ◽  
Strategic Cost Management ◽  
Options Theory

The Value of Managerial Flexibility in Strategic IT Investment

2011 ◽  
pp. 111-132 ◽  
Author(s):  
Xiaotong Li ◽  
John D. Johnson
Keyword(s):  
Real Options ◽  
Investment Decision ◽  
Investment Decisions ◽  
It Investment ◽  
Real Options Theory ◽  
Investment Evaluation ◽  
Managerial Flexibility ◽  
Investment Opportunities ◽  
The Relationship ◽  
Options Theory

In this chapter, we discuss the real options theory and its applications in IT investment evaluation. We provide a framework within which the appropriateness of using real options theory in strategic IT investment evaluation is systematically justified. In our framework, IT investment opportunities are classified into four categories based on two criteria: the technology switching costs and the nature of competition. We point out that different real options models should be adopted for each category. The electronic brokerage’s investment decision in wireless technology is discussed as a real-world case within the framework. Our study also provides some insights about the relationship between technology standardization and IT investment decisions.

Option valuation of Philippine forest plantation leases

2004 ◽  
Vol 9 (3) ◽  
pp. 315-333 ◽  
Author(s):  
ROBERTO C. YAP
Keyword(s):  
Real Options ◽  
Sunk Costs ◽  
Forest Plantation ◽  
Market Uncertainty ◽  
Real Options Theory ◽  
Highly Sensitive ◽  
Future Value ◽  
Plantation Development ◽  
Philippine Government ◽  
Options Theory

The Philippine forest plantation lease is modelled as an option whose value arises from market uncertainty and the irreversibility inherent in sunk costs required to establish plantations. The value of this option could be a significant factor in the planting decisions of leaseholders. Real options theory could help explain why in spite of the prospects of adequate financial returns, Filipino leaseholders are slow to establish plantations. The opportunity cost of investing is demonstrated to be highly sensitive to uncertainty of the future value of the plantation. Real options analysis is also utilized to evaluate policies intended by the Philippine government to promote plantation development.

The influence of global uncertainty on the cross-border performance appraisal

2014 ◽  
Vol 43 (1) ◽  
pp. 19-40 ◽  
Author(s):  
Jane Maley ◽  
Robin Kramer
Keyword(s):  
Real Options ◽  
Performance Management ◽  
Performance Appraisal ◽  
Multinational Corporations ◽  
Content Type ◽  
Real Options Theory ◽  
Cross Border ◽  
Global Uncertainty ◽  
Profit Maximisation ◽  
Options Theory

Purpose – The aim of this paper is to examine the practice of performance management in a cross-border context in times of global uncertainty. Design/methodology/approach – This is a conceptual paper. Findings – The findings expose global uncertainty to be wielding a significant influence on performance management. Practical implications – A practical framework is developed using real options theory. This approach offers suggestions for multinational corporations to increase the effectiveness of their performance management while at the same time focusing on profit-maximisation. Originality/value – This paper enhances international management research by recognizing that real options theory can effectively be applied to improve the effectiveness of performance management in global uncertainty.

Enterprise Resource Planning Under Open Source Software

2010 ◽  
pp. 1571-1589
Author(s):  
Ashley Davis
Keyword(s):  
Real Options ◽  
Open Source ◽  
Open Source Software ◽  
Enterprise Resource Planning ◽  
Resource Planning ◽  
Future Trends ◽  
Critical Factors ◽  
Real Options Theory ◽  
The Right ◽  
Options Theory

Open source software is becoming more prevalent in businesses today, and while still a relatively immature offering, open source enterprise resource planning (OS-ERP) systems are becoming more common. However, whether or not an OS-ERP package is the right software for a given organization is a little researched question. Building on the current real options thinking about platform acquisitions, this chapter proposes the five most critical factors to consider when evaluating an OS-ERP package. To adequately do this, a great deal of detail about the current offerings in OS-ERP software is presented, followed by a review of the real options theory and thinking behind using these factors to evaluate OS-ERP options. The international implications of OS-ERP are presented in the “Future Trends” section.

Real Options Analysis in Strategic Information Technology Adoption

2011 ◽  
pp. 3199-3204
Author(s):  
Xiaotong Li
Keyword(s):  
Information Technology ◽  
Technology Adoption ◽  
Real Options ◽  
Real World ◽  
Investment Decision ◽  
Investment Planning ◽  
It Investment ◽  
Real Options Theory ◽  
The Real ◽  
Options Theory

Many information resource managers have learned to be proactive in today’s highly competitive business environment. However, limited financial resources and many uncertainties require them to maximize their shareholders’ equity while controlling the risks incurred at an acceptable level. As the unprecedented development in information technology continuously produces great opportunities that are usually associated with significant uncertainties, technology adoption and planning become more and more crucial to companies in the information era. In this study, we attempt to evaluate IT investment opportunities from a new perspective, namely, the real options theory. Its advantage over other capital budgeting methods like static discounted cash flow analysis has been widely recognized in analyzing the strategic investment decision under uncertainties (Amram & Kulatilaka, 1999; Luehrman, 1998a, 1998b). Smith and McCardle (1998, 1999) further show that option pricing approach can be integrated into standard decision analysis framework to get the best of the both worlds. In fact, some previous IS researches have recognized the fact that many IT investment projects in the uncertain world possess some option-like characteristics (Clemsons, 1991; Dos Santos, 1991; Kumar, 1996). Recently, Benaroth and Kauffman (1999) and Taudes, Feurstein and Mild (2000) have applied the real options theory to real-world business cases and evaluated this approach’s merits as a tool for IT investment planning. As all real options models inevitably depend on some specific assumptions, their appropriateness should be scrutinized under different scenarios. This study aims to provide a framework that will help IS researchers to better understand the real options models and to apply them more rigorously in IT investment evaluation. As the technology changes, the basic economic principles underlying the real options theory do not change. We do need to integrate the IT dimension into the real options based investment decision-making process. Using electronic brokerage’s investment decision in wireless technology as a real-world example, we show the importance of adopting appropriate real options models in IT investment planning. By specifically focusing on the uncertainties caused by IT innovation and competition, our study also gives some intriguing results about the dynamics between IT adoption and the technology standard setting process.

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