Recognizing Risk in Human Capital Investments: A Real Options Approach to Strategic Human Resource Management

An issue that has not yet been explored in the field of strategic human resource management (SHRM) is that of managing the ‘risks’ involved in human capital management of the firm. We address this issue using the real option theory framework. We argue that certain HR practices manage risk and generate opportunities for the firm by creating \u27options\u27 for its human capital management. These HR options help ensure stability of returns from human capital and thus sustain competitive advantage. Different types of HR options and the role of certain HR practices in creation of these options are discussed

Internet of Things and Their Coming Perspectives: A Real Options Approach

Internet of things is developing at a dizzying rate, and companies are forced to implement it in order to maintain their operational efficiency. The high flexibility inherent to these technologies makes it necessary to apply an appropriate measure, which properly assesses risks and rewards. Real options methodology is available as a tool which fits the conditions, both economic and strategic, under which investment in internet of things technologies is developed. The contribution of this paper is twofold. On the one hand, it offers an adequate tool to assess the strategic value of investment in internet of things technologies. On the other hand, it tries to raise awareness among managers of internet of things technologies because of their potential to contribute to economic and social progress. The results of the research described in this paper highlight the importance of taking action as quickly as possible if companies want to obtain the best possible performance. In order to enhance the understanding of internet of things technologies investment, this paper provides a methodology to assess the implementation of internet of things technologies by using the real options approach; in particular, the option to expand has been proposed for use in the decision-making process

Business Value of IT Investment: The Case of a Low Cost Airline’s Website

Using the case of a low cost airline company’s website we analyze some special research questions of information technology valuation. The distinctive characteristics of this research are the ex post valuation perspective; the parallel and comparative use of accounting and business valuation approaches; and the integrated application of discounted cash flow and real option valuation. As the examined international company is a strategic user of e-technology and wants to manage and account intangible IT-assets explicitly, these specific valuation perspectives are gaining practical significance

Applying Real Options Thinking to Information Security in Networked Organizations

An information security strategy of an organization participating in a networked business sets out the plans for designing a variety of actions that ensure confidentiality, availability, and integrity of company’s key information assets. The actions are concerned with authentication and nonrepudiation of authorized users of these assets. We assume that the primary objective of security efforts in a company is improving and sustaining resiliency, which means security contributes to the ability of an organization to withstand discontinuities and disruptive events, to get back to its normal operating state, and to adapt to ever changing risk environments. When companies collaborating in a value web view security as a business issue, risk assessment and cost-benefit analysis techniques are necessary and explicit part of their process of resource allocation and budgeting, no matter if security spendings are treated as capital investment or operating expenditures. This paper contributes to the application of quantitative approaches to assessing risks, costs, and benefits associated with the various components making up the security strategy of a company participating in value networks. We take a risk-based approach to determining what types of security a strategy should include and how much of each type is enough. We adopt a real-options-based perspective of security and make a proposal to value the extent to which alternative components in a security strategy contribute to organizational resiliency and protect key information assets from being impeded, disrupted, or destroyed

MCA4climate: A Practical Framework for Planning Pro-Development Climate Policy

MCA4climate is a major new UNEP initiative providing 1 Introduction practical assistance to governments in preparing their climate change mitigation and adaptation plans and strategies. It aims to help governments, particularly in developing countries, identify policies and measures that are low cost, environmentally effective and consistent with national development goals. It does this by providing a structured approach to assessing and prioritizing climate-policy options, while taking into consideration associated social, economic, environmental and institutional costs and benefits. In doing so, it seeks to counter the widely held perception that tackling climate change is costly, highlight the potential developmental benefits of addressing climate change and encourage action to that end

Options for Human Capital Acquisition

An \u27options\u27 view of human capital acquisition explains value creation through timedeferred, sequential, path-dependent investment choices and addresses gaps in the resourcebased theory explanation of the relationship between human resources and competitive advantage. Firms will invest in options for human capital, using alternative employment arrangements like temporary/contractual/part-time workers and internships, or by outsourcing the work, when uncertainty associated with human capital is high and investments in human capital are largely irreversible. We discuss various options for skills and employees, two interrelated components of human capital. These are flexibility options, options to wait or defer, options to abandon, learning options, and switching options. The opportunity cost of not having options is quantifiable, which makes the real options approach valuable for strategic HRM decisions

Optimal regime switching under risk aversion and uncertainty

echnology adoption is key for corporate strategy, often determining the success or failure of a company as a whole. However, risk aversion often raises the reluctance to make a timely technology switch, particularly when this entails the abandonment of an existing market regime and entry in a new one. Consequently, which strategy is most suitable and the optimal timing of regime switch depends not only on market factors, such as the definition of the market regimes, as well as economic and technological uncertainty, but also on attitudes towards risk. Therefore, we develop a utility-based, regime-switching framework for evaluating different technology-adoption strategies under price and technological uncertainty. We assume that a decisionmaker may invest in each technology that becomes available (compulsive) or delay investment until a new technology arrives and then invest in either the older (laggard) or the newer technology (leapfrog). Our results indicate that, if market regimes are asymmetric, then greater risk aversion and price uncertainty in a new regime may accelerate regime switching. In addition, the feasibility of a laggard strategy decreases (increases) as price uncertainty in an existing (new) regime increases. Finally, although risk aversion typically favours a compulsive and a laggard strategy, a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high

A Survey on Economic-driven Evaluations of Information Technology

The economic-driven evaluation of information technology (IT) has become an important instrument in the management of IT projects. Numerous approaches have been developed to quantify the costs of an IT investment and its assumed profit, to evaluate its impact on business process performance, and to analyze the role of IT regarding the achievement of enterprise objectives. This paper discusses approaches for evaluating IT from an economic-driven perspective. Our comparison is based on a framework distinguishing between classification criteria and evaluation criteria. The former allow for the categorization of evaluation approaches based on their similarities and differences. The latter, by contrast, represent attributes that allow to evaluate the discussed approaches. Finally, we give an example of a typical economic-driven IT evaluation