Rita McGrath

Using Real Options Discipline for Highly Uncertain Technology Investments

Coauthor(s): Ian MacMillan, Alex Van Putten, James Thompson.

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Abstract:
Existing methodologies offer little help in selecting among uncertain technology investments. However, Discovery Driven Planning in conjunction with Real Options Discipline allows managers to make aggressive investments while maintaining fiduciary responsibility. Discovery Driven Planning provides an effective way to plan investments when there is true ambiguity about their prospects. Real Options Discipline yields a more effective selection method than is offered by standard net present value calculations, which tend to reject investments with high potential but uncertain outcomes. When combined, the two methodologies create an effective way of managing highly uncertain projects in order to capture their potential value while limiting costs.

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