Title: Real-world real options: a powerful decision technology tool for managing risk and flexibility in capital investment projects

Authors: Sameer Kumar, Lisa Turner

Addresses: College of Business, University of St. Thomas, Mail No. TMH 343, 1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA. ' College of Business, University of St. Thomas, Mail No. TMH 343, 1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA

Abstract: Traditional methods of capital investment project evaluation do not provide the flexibility for strategic decision making on new business ventures. However, real options tools encourage proactive strategic management and, when used properly, can significantly improve decision making in regard to capital investments. Historical perspective on the use of real options is presented and a summary of available tools for invoking this approach. Three examples of real-life capital-intensive high-risk new business ventures in the Architecture, Engineering, Construction (AEC) and Real Estate Development industries are chosen to show how real options can be used to more accurately determine the value of flexibility on projects.

Keywords: new business ventures; capital investment analysis; real options analysis; venture capital investment; decision technology tools; electronic finance; risk management; flexibility management; project evaluation; strategic decision making; strategic management; real estate industry; architecture, engineering, construction industry; AEC industry; e-finance.

DOI: 10.1504/IJEF.2006.008838

International Journal of Electronic Finance, 2006 Vol.1 No.1, pp.68 - 93

Published online: 31 Jan 2006 *

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