Valuation of IT Investments Using Real Options Theory

Real Options Theory is often applied to the valuation of IT investments. The application of Real Options Theory is generally accompanied by a monetary valuation of real options through option pricing models which in turn are based on restrictive assumptions and thus subject to criticism. Therefore, this paper analyzes the application of option pricing models to the valuation of IT investments. A structured literature review reveals the types of IT investments which are valued with Real Options Theory in scientific literature. These types of IT investments are further investigated and their main characteristics are compared to the restrictive assumptions of traditional option pricing models. This analysis serves as a basis for further discussion on how the identified papers address these assumptions. The results show that a lot of papers do not account for critical assumptions, although it is known that the assumptions are not fulfilled. Moreover, the type of IT investment determines the criticality of the assumptions. Additionally, several extensions or adaptions of traditional option pricing models can be found which provide the possibility to relax critical assumptions. Researchers can profit from the results derived in this paper in two ways: First, it is demonstrated which assumptions can be critical for various types of IT investments. Second, extensions of option pricing models that relax critical assumptions are introduced

ESTIMATION ACCURACY IN LARGE IS PROGRAMS - INSIGHTS FROM A DESCRIPTIVE CASE STUDY

Information systems (IS) projects are famous for experiencing severe cost overruns, which amongst others are often caused by inaccurate ex-ante cost estimations. Against this background, this article presents a descriptive case study located in an IS transformation program at a major German financial services provider. In this case study, a multi-stage cost estimation process, which was applied to 79 IS projects, is described and the estimation accuracy of the cost estimations of all IS projects is determined using different estimation accuracy measures: Estimating Quality Factor, Forecast Error, and Mean Absolute Percentage Error. Depending on the concrete estimation accuracy measure used for the evaluation, the overall estimation quality of the program turns out to be evaluated as good or at least average “ which seems to be contrary to most studies in scientific literature. However, the results further reveal that the estimation accuracy also depends on the estimation accuracy measure chosen for the evaluation. These differing judgements are discussed from a management perspective

k-PathA: k-shortest Path Algorithm

One important aspect of computational systems biology includes the identification and analysis of functional response networks within large biochemical networks. These functional response networks represent the response of a biological system under a particular experimental condition which can be used to pinpoint critical biological processes. For this purpose, we have developed a novel algorithm to calculate response networks as scored/weighted sub-graphs spanned by k-shortest simple (loop free) paths. The k-shortest simple path algorithm is based on a forward/backward chaining approach synchronized between pairs of processors. The algorithm scales linear with the number of processors used. The algorithm implementation is using a Linux cluster platform, MPI lam and mpiJava messaging as well as the Java language for the application. The algorithm is performed on a hybrid human network consisting of 45,041 nodes and 438,567 interactions together with gene expression information obtained from human cell-lines infected by influenza virus. Its response networks show the early innate immune response and virus triggered processes within human epithelial cells. Especially under the imminent threat of a pandemic caused by novel influenza strains, such as the current H1N1 strain, these analyses are crucial for a comprehensive understanding of molecular processes during early phases of infection. Such a systems level understanding may aid in the identification of therapeutic markers and in drug development for diagnosis and finally prevention of a potentially dangerous disease

Continuum robot actuation by a single motor per antagonistic tendon pair: Workspace and repeatability analysis [Kontinuumsroboter-Aktuierung mittels eines Motors pro antagonistischen Kabelpaar. Arbeitsraum- und Wiederholgenauigkeitsanalyse]

Kontinuumroboter sind stark im Fokus aktueller medizinrobotischer Forschung. Da die meisten der in der Literatur vorgestellten Systeme jedoch komplexe und große Aktoreinheiten aufweisen, kann das Erstellen eines solchen Systems in aufwendigen, kostenintensiven und sperrigen Aufbauten resultieren, welche ungeeignet für die räumlichen Anforderungen des Einsatzes in medizinischen Szenarien sind. In dieser Arbeit wird ein einfaches, effizientes kontinuumrobotisches System vorgestellt, in welchem ein antagonistisches Paar von Kabelzügen durch einen Servomotor bewegt wird, anstatt jedes Kabel durch einen einzelnen Motor zu treiben. Auf diese Weise kann die Grundfläche der Aktoreinheit klein gehalten werden und die Methode resultiert in einem einfacheren Aufbau. Der resultierende 260 mm lange Roboter mit 9,9 mm Durchmesser erreicht eine Wiederholgenauigkeit von 1,8 % seiner Länge. In zukünftigen Arbeiten dient er als Basis für die Integration von verschiedener Sensormodalitäten in Kontinuumroboter und zur Evaluation von Steueralgorithmen

Bewertung von Handlungsflexibilität bei Prozess- und IT-Investitionen

Ziel dieser Dissertation ist es, den Wert von Handlungsflexibilität bei Prozess- und IT-Investitionen zu bestimmen. Zunächst wird untersucht, welchen Wert flexible Geschäftsprozesse für ein Unternehmen generieren können. Anschließend wird die Fragestellung untersucht, wie Handlungsflexibilität bei der Bewertung von IT-Investitionen berücksichtigt werden kann

A real options approach for valuating intertemporal interdependencies within a value-based IT portfolio management - A risk-return perspective

Value-based IT portfolio management requires the consideration of intertemporal interdependencies that may exist among IT projects. Therefore, several papers suggest adopting the real options approach in order to include intertemporal interdependencies within the valuation of IT projects. However, this paper shows that the standard Black-Scholes model, which is often used for valuating real options, is not appropriate to correctly account for project-specific private risks due to its restrictive assumptions. Since this can have major impacts on the value of IT projects, we develop an approach – based on the Black-Scholes model – to consider private risks properly within project valuation. A comparison of the results of the standard Black-Scholes model used today and our approach finally reveals that the neglect of private risks results in a systematic underestimation of both risk and return of IT projects, which may lead to wrong investment decisions

Impact of symbolic product design on brand evaluations

Purpose – The purpose of this paper is to investigate the impact of symbolic product information (symbolic product design) on consumers’ perceived brand evaluations. In an experimental setting, the authors consider as key factors the congruence between symbolic product design and product category, the level of product involvement as well as brand strength. Design/methodology/approach – In an experiment of 490 participants, consumers are confronted to different symbolic product designs connotations. Based on the cognitive process model “SARA” (selective activation, reconstruction and anchoring), the authors examined how symbolic product design associations are used as heuristics in the working memory when making brand judgement. Findings – The results show that product design associations are used in consumers’ information processing as anchor for brand evaluations. This effect is stronger if symbolic design associations are incongruent to the product category because of consumers’ deeper elaboration process. Furthermore, the impact of symbolic product design is higher for weak compared to strong brands. Research limitations/implications – This research supports the cognitive process model “SARA” being an appropriate foundation explaining the effects of symbolic product design. Further research should extend this experiment, using a field study in a more realistic setting and/or a choice situation between different alternative product designs at the point of sale. Furthermore, the consumers’ elaboration process should be manipulated differently, e.g. in a mental load condition. Practical implications – Symbolic product design is important to enhance brand association networks in the consumers’ mind, particularly if the brand is weak. Marketers should use incongruent symbolic product information to differentiate from competitors who use “stereotype” product designs. Originality/value – Research about product design in the marketing discipline is still limited. The authors analyse the impact of symbolic product design on brand evaluations in an experimental setting of 490 respondents in four product categories. The findings support that consumers use product design as heuristics to evaluate brands