Reacting to Risk with Real Options: Valuation of Managerial Flexibility in IT Projects.

Since flexibility is a critical success factor in relation to the management and design of IT investments, and understanding flexibility is a difficult issue, it is important to explore how firms build flexibility into their IT investment decisions. This dissertation investigates how managerial flexibility, as a response to risks, impacts IT project valuation. The dissertation attempts to answer this question by conducting three separate studies using a real options perspective. Firstly, we explore whether managerial flexibility in IT investment decisions is recognized in practice by conducting exploratory case study research. Secondly, we investigate how managerial flexibility in IT projects can be valued. We develop a theoretical decision-making model which deals with both financial and non-financial IT project valuation criteria and apply the model in a case study. Thirdly, we take a qualitative perspective on the management of managerial flexibility in relation to IT project risk. We empirically test the effects of specific risks on the valuation of real options in IT project decisions in an experimental setting. The primary contribution of this dissertation is to provide evidence that managers differentially assess the relative value of different types of options when controlling IT project risks. The relative value that IT professionals place on various real options is both driven by both the intrinsic real options value and by risk factors associated with an IT project. Their assessment generally follows real options-based risk management reasoning.

Detection of early warning signals for overruns in IS projects: linguistic analysis of business case language

Many Information Systems (IS) projects fail to be completed within budget and on schedule. A contributing factor is the so-called planning fallacy in which people tend to underestimate the resources required to complete a project. In this paper, we propose that signals of the planning fallacy can be detected in a project’s business case. We investigated whether language usage in business cases can serve as an early warning signal for overruns in IS projects. Drawing on two theoretical perspectives–t

Reacting to risk with real options: Valuation of managerial flexibility in IT projects

Since flexibility is a critical success factor in relation to the management and design of IT investments, and understanding flexibility is a difficult issue, it is important to explore how firms build flexibility into their IT investment decisions. This dissertation investigates how managerial flexibility, as a response to risks, impacts IT project valuation. The dissertation attempts to answer this question by conducting three separate studies using a real options perspective. Firstly, we explore whether managerial flexibility in IT investment decisions is recognized in practice by conducting exploratory case study research. Secondly, we investigate how managerial flexibility in IT projects can be valued. We develop a theoretical decision-making model which deals with both financial and non-financial IT project valuation criteria and apply the model in a case study. Thirdly, we take a qualitative perspective on the management of managerial flexibility in relation to IT project risk. We empirically test the effects of specific risks on the valuation of real options in IT project decisions in an experimental setting. The primary contribution of this dissertation is to provide evidence that managers differentially assess the relative value of different types of options when controlling IT project risks. The relative value that IT professionals place on various real options is both driven by both the intrinsic real options value and by risk factors associated with an IT project. Their assessment generally follows real options-based risk management reasoning

Reacting to risk with real options:Valuation of managerial flexibility in IT projects

Since flexibility is a critical success factor in relation to the management and design of IT investments, and understanding flexibility is a difficult issue, it is important to explore how firms build flexibility into their IT investment decisions. This dissertation investigates how managerial flexibility, as a response to risks, impacts IT project valuation. The dissertation attempts to answer this question by conducting three separate studies using a real options perspective. Firstly, we explore whether managerial flexibility in IT investment decisions is recognized in practice by conducting exploratory case study research. Secondly, we investigate how managerial flexibility in IT projects can be valued. We develop a theoretical decision-making model which deals with both financial and non-financial IT project valuation criteria and apply the model in a case study. Thirdly, we take a qualitative perspective on the management of managerial flexibility in relation to IT project risk. We empirically test the effects of specific risks on the valuation of real options in IT project decisions in an experimental setting. The primary contribution of this dissertation is to provide evidence that managers differentially assess the relative value of different types of options when controlling IT project risks. The relative value that IT professionals place on various real options is both driven by both the intrinsic real options value and by risk factors associated with an IT project. Their assessment generally follows real options-based risk management reasoning.