A real options approach to strategic RFID investment decision

Abstract

One major roadblock for RFID adoption is to justify its return on investment. Most researchers used cost/benefit analysis, discount cash flow, or net present value method to support the decision; however, these methods does not consider uncertainties and lack flexibility when valuate the investment in RFID. In this paper, we examine the uncertainties and risks associated with RFID investment and propose the use of real options approach to consider them. We demonstrate how can a real options method be used and suggest a process for making strategic RFID investment decision. The results were evidenced and supplemented with a sensitivity analysis.