Real options and business practice

The logic of real options is increasingly gaining importance nowadays because it helps decision makers have a more accurate and realistic view of their investment plans and at the same time secure projects in terms of handling uncertainty. The objective of this paper is to make a brief bibliographical overview of the real options approach helping readers understand the true meaning and virtues of real options and at the same time give useful examples regarding their application areas. It unfolds the aspects of real options, contrasting them with standard investment evaluation techniques and sorting them into ‘on’ and ‘in’ projects. Applications but also boundaries of real options are also included in this paper in order to make the connection between theory and business practice.