The Evaluation of IT Investments through Real Options

Abstract

The decisions about IT investments are increasingly more complex, due to technical uncertainties and to the dynamics of organizational and strategic issues. One promising alternative for solving this problem would be the use of real options. Thus, this chapter intends to apply a relatively new methodology, called real options, used in corporate strategy for evaluating and deciding about new investments in IT. In order to do so, an analytic review of the literature is presented. The real options methodology is particularly recommended in two situations: in the case of the existence of a significant level of uncertainty about the benefits to be achieved by IT investments, or when IT benefits do not impact directly the current business but create a platform for future investments, capable of producing future new business impacts.