Real Options Theory

2020 ◽  
pp. 1-19
Author(s):  
Hugo Ferreira Braga Tadeu ◽  
Jersone Tasso Moreira Silva ◽  
George Leal Jamil
Keyword(s):  
Decision Making ◽  
Project Management ◽  
Real Options ◽  
Project Evaluation ◽  
Research Field ◽  
Management Decision ◽  
Real Options Theory ◽  
Management Decision Making ◽  
Innovation Project ◽  
Options Theory

The objective of this chapter is to present the real options theory (ROT) as an alternative methodology applicable to investment analyses in research and development projects (R&D). The authors intend to simulate the evaluation of an R&D project as a real option, compare real options theory outcomes to a conventional R&D project evaluation technique, and review real options theory as a trend in innovation project evaluation. The outcomes were compared to those obtained via the traditional net present value (NPV) method and a brief practical discussion regarding project management decision making is held. Finally, although ROT is still in a developmental and consolidation stage, the authors suggests that it can be used as a promising tool in the decision-making process concerning R&D projects. ROT is presented as a research field that would integrate a set of emerging management technologies, becoming a theoretical base for new tools and methods to support project management (PM) decision making.

scholarly journals Can Serious Games Improve Project Management Decision Making Under Complexity?

2018 ◽  
Vol 50 (1) ◽  
pp. 23-39 ◽  
Author(s):  
David Rumeser ◽  
Margaret Emsley
Keyword(s):  
Decision Making ◽  
Project Management ◽  
Performance Improvement ◽  
Work Experience ◽  
Serious Games ◽  
Project Work ◽  
Management Decision ◽  
Project Complexity ◽  
Management Decision Making ◽  
Management Games

The existing literature on project management serious games tends to ignore the effect of project complexity levels on decision-making performance. This research fills this gap by conducting an experiment whereby two similar project management games with different complexity levels were applied. Our findings suggest that these games can improve players’ decision-making performance both in the less complex and more complex scenarios. We also discover that game complexity levels do not affect teams’ decision-making performance improvement, and that teams with more project work experience tend to improve more than those with less experience in the more complex game.

Maintenance Decisions for Offshore Structures Using Real Options Theory

2004 ◽  
Author(s):  
Ernesto Heredia-Zavoni ◽  
Sandra Santa-Cruz
Keyword(s):  
Decision Making ◽  
Real Options ◽  
Cash Flow ◽  
Net Present Value ◽  
Offshore Structures ◽  
Present Value ◽  
Real Options Theory ◽  
Financial Variables ◽  
Maintenance Decisions ◽  
Options Theory

Real Options methods are currently used to assess investment projects considering: (1) the decision options that one can have along the development of the project, such as to expand it, or reduce it, or to abandon it, or to differ it, and (2) the uncertainty in some financial variables for the assessment of the economic investment. In these two regards, Real Options methods are superior to the traditional Net Present Value method. The purpose of the present paper is to establish the basis for Real Options modeling for decision making on design, inspection, maintenance, and decommissioning of offshore structures. The use of Real Options theory is sought in order to account for: (1) uncertainties in the financial variables involved in risk assessment based on expected costs, such as the economic consequences due to failure of a system; and (2) uncertainties associated with the resistance and loading of the structure for reliability assessment. An application of Real Options Theory is given in the paper for decision making on maintenance for an offshore structure. Cash flow from oil revenue is modeled as a stochastic process. Preventive and corrective maintenance is analyzed as a critical situation where the decision maker has the option to pay the costs of maintenance in order to obtain a benefit. Expressions are derived for the estimation of the value of the maintenance option; they are based on the derivation of the Black-Scholes equation for the evaluation of financial options. It is shown that the value of such project is equal to the sum of the net cash flow of the project (as with a Net Present Value evaluation) plus the value of the maintenance option. Projects with one and two decision times along the life of the structure are formulated and analyzed. Closed form solutions are obtained for such cases. An example is given in order to illustrate the differences between maintenance decisions using the Net Present Value and the Real Options method.

Real Options in flood risk management decision making

2011 ◽  
Vol 4 (4) ◽  
pp. 339-349 ◽  
Author(s):  
M. Woodward ◽  
B. Gouldby ◽  
Z. Kapelan ◽  
S.-T. Khu ◽  
I. Townend
Keyword(s):  
Decision Making ◽  
Risk Management ◽  
Real Options ◽  
Flood Risk ◽  
Flood Risk Management ◽  
Management Decision ◽  
Management Decision Making

scholarly journals Application of Genetic Algorithms for Decision-Making in Project Management: A Literature Review

2019 ◽  
Vol 22 ◽  
pp. 22-31
Author(s):  
Ieva Ancveire ◽  
Inese Poļaka
Keyword(s):  
Decision Making ◽  
Genetic Algorithms ◽  
Project Management ◽  
Human Resources ◽  
Scientific Literature ◽  
Management Decision ◽  
Decision Making Process ◽  
Development Projects ◽  
Management Decision Making ◽  
Available Information

In software development projects, managers still have to face a variety of organisational and technical limitations despite the development of technology and approaches to improve the project management process. Projects, Human Resources and Costs are planned for a specific period of time. However, in the progression of project execution, there is a need to make various decisions and to dynamically adjust the work plan during the project in order to conform to its evolution. Thus, there is a need for a method that employs the latest technology to support the project management decision-making process. The aim and the expected result of the article are to identify and collect available information in the scientific literature to answer the following questions: (1) Which challenges of project management have been addressed using genetic algorithms? (2) What are the opportunities and limitations of genetic algorithms in the project management decision-making process? (3) What are the potential solutions to the identified genetic algorithm problems?

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