Real option analysis--improving project selection in healthcare settings.

Abstract

The effective selection of information technology projects is crucial for achieving gains from healthcare IT. This article introduces through example "real options analysis," a project selection best practice. The author discusses the applications of real options analysis, with emphasis on healthcare settings, and addresses the importance of organizational characteristics on real options analysis. The real options approach is an improvement over net present value analysis, which uses single estimates of future revenue and costs. Additionally, thinking of projects in terms of options helps design and manage investment strategies by identifying and valuing alternatives inherent in a project.