The Application of Real Options to the R & D Outsourcing Decision

The Application of Real Options to the R & D Outsourcing Decision

Qing Cao (University of Missouri - Kansas City, USA), David N. Ford (Texas A&M University, USA) and Karyl B. Leggio (University of Missouri - Kansas City, USA)
Copyright: © 2007 |Pages: 12
DOI: 10.4018/978-1-59904-195-7.ch017
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Abstract

This chapter is a companion chapter to Chapter XVI, Real Option Appraisal in R&D Outsourcing. We provide two real-world case studies of the application of real options to answer the question: “How do practicing planners and managers use and value flexibility in development projects?” The first case study we develop is based on the outsourcing decision-making process, more specifically, a two-stage vendor selection approach (applying real options theory) to adopting a supply chain management (SCM) system in a Shanghai-based transportation company — Chic Logistics. In the second case study, we use the example of the National Ignition Facility (NIF) to illustrate how decision-makers identify uncertainty and value flexibility in project analysis, and by deliberate decision, increase their options and thereby project value.

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