Beyond Option Based Investment Decision: A Project Management Approach to System Valuation

Abstract

Companies invest in IT/IS project for various reasons (e.g., lower operational cost. gain competitive advantage). Ideally, every project should be evaluated and managed based on its unique characteristics. Real option theory has been applied to IS projects and is considered the contemporary valuation method used specifically for strategic projects with negative Net Present Value(NPV). Current studies, however, stop at the initial decision and neglect to investigate the impact of project management on the project's value. In this paper, we attempt to integrate project management practices with project valuation using real option theory and process theory. We use a hypothetical example to illustrate the relationships between the two concepts.