Beyond Valuation: Real Options Thinking in it Project Management

Posted: 19 Sep 2006

See all articles by Robert G. Fichman

Robert G. Fichman

Boston College - Carroll School of Management

Mark Keil

Georgia State University

Amrit Tiwana

Iowa State University

Abstract

Real options can be a powerful tool for quantifying the value of strategic and operational flexibility associated with uncertain IT investments. However, they also constitute a new way of thinking about how projects can be organized and managed to maximize upside potential while minimizing downside risk. Explains how practitioners can incorporate options thinking into contemporary IT project management. Options thinking means recognizing real options and how they add value. Just as important is managing projects so that the option value that exists in theory is realized in practice. Several real-world examples illustrate how the value of embedded real options can be realized through active project management. There are pitfalls associated with each option, as well as benefits and limitations of different approaches to valuing options. Organizations must decide whether to undertake the challenges of adopting options thinking as a project management philosophy.

Keywords: Real options, escalation, project management, risk

Suggested Citation

Fichman, Robert G. and Keil, Mark and Tiwana, Amrit, Beyond Valuation: Real Options Thinking in it Project Management. Fichman, R, M. Keil, and A. Tiwana "Beyond Valuation: Real Options Thinking in IT Project Management," 2004, (Also appears in Harvard Business School's case repository as CMR304.), California Management Review, Vol. 47, No. 2, pp. 74-100, 2005, Available at SSRN: https://ssrn.com/abstract=930962

Robert G. Fichman (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Mark Keil

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30302
United States

Amrit Tiwana

Iowa State University ( email )

Ames, IA 50011-2063
United States

HOME PAGE: http://www.bus.iastate.edu/tiwana/

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