Decision Support for IT Investment Projects - A Real Option Analysis Approach Based on Relaxed Assumptions

Managerial flexibilities have to be taken into account in ex-ante decision-making on IT investment projects (ITIPs). In many papers of the IS literature, standard financial option pricing models are used to value such managerial flexibilities. Based on a review of the related literature, the paper critically discusses the assumptions of the most frequently used financial option pricing model, namely the Black–Scholes model, arguing for relaxed assumptions that better represent the characteristics of ITIPs. The authors find that existing real option analysis approaches featured in the IS, Finance, and Economics literature are unable to consider more than two of our relaxed assumptions. Consequently, they present their own approach in form of a simulation model for the valuation of real options in ITIPs which offers a better representation of the characteristics of ITIPs by taking the discounted cash-flows and the runtime to be uncertain as well as the market to be incomplete. Based on these modifications of the Black–Scholes model’s assumptions, it is found that the resulting option value contains idiosyncratic risk that has to be taken into account in ITIP decision making. For the realistic case of risk averse decision makers, the consideration of idiosyncratic risk usually leads to a lower risk-adjusted option value, compared to one calculated by means of the Black–Scholes model. This confirms the perception of managers who feel that financial option pricing models frequently overvalue ITIPs and hence may induce flawed investment decisions

Towards a Well-Founded Valuation of Managerial Fleibilities in IT Investment Projects - A Multidisciplinary Literature Review

In the IS literature standard financial option pricing models are predominantly used to value real options embedded in uncertain IT projects. Based on a multidisciplinary literature review, we discuss the assumptions implicit in the prevalent Black-Scholes model and argue for relaxed assumptions that better represent characteristics of uncertain IT projects. This is followed by a discussion of real option approaches from the fields of IS, Finance, and Economics in respect of their compliance with these relaxed assumptions. Findings are: (I) by relaxing the assumptions, the option value and project selection decisions are liable to change; (II) several approaches from Finance and Economics literature better comply with our relaxed assumptions compared to existing approaches in IS literature; (III) no existing real option approach complies with all relaxed assumptions. Adapting and enhancing approaches of other disciplines could be a push towards a well-founded valuation of real options embedded in IT projects

Aseptic stem loosening in primary THA: migration analysis of cemented and cementless fixation

Early migration has reportedly been predictive for later implant failure. Using four different migration patterns, this study aimed to analyse migration behaviour of the two types of implant fixation—cemented and cementless—throughout the process of loosening. Migrational behaviour of 69 revised stems (49 cemented, 20 uncemented) was analysed retrospectively with EBRA-FCA (Einzel-Bild-Röntgen-Analyse, Femoral Component Analysis). Uncemented stems failed after early and late onset migration alike, while late migration was the predominant pattern in cemented stems. Mean prosthetic failure after early migration occurred 5.8 (±4.4) years postoperatively due to insufficient primary stability. Initially stable stems with late onset migration were revised after 12.4 (±4.5) years. Measurement of early migration was found to be a valuable tool to screen short-term and mid-term failure. In the long run the method’s sensitivity decreased. Late onset migration, however, preceded long-term failure by a mean of three years