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. This article 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.
- Copyright ©2005 The Regents of the University of California