tailieunhanh - Real Options in practice Chapter 6

CHAPTER 6 Adding Option Value by Intervention. Real options value managerial flexibility in response to future uncertainties. Managerial flexibility entails all measures that add value to ongoing operations or improve decision making on future operations such as the option to position, the option to improve a product, and the option to accelerate or delay time to market of a product or service, as well as the option to invest in learning. | Adding Option Value by Intervention Real options value managerial flexibility in response to future uncertainties. Managerial flexibility entails all measures that add value to ongoing operations or improve decision making on future operations such as the option to position the option to improve a product and the option to accelerate or delay time to market of a product or service as well as the option to invest in learning. Financial option pricing as pointed out in Chapter 1 is based on the observable market price of the stock and on the assumption that historic movement is indicative for future movement. For real options assumptions about future payoffs of any given asset are subjective estimates. There is a valueadding incentive to reduce uncertainty for those estimates and from this derives the value of the option to wait for the arrival of new information. Management however may not just allow for passive learning by observing the market but may also reduce uncertainty by investing in an active learning process that reveals valuable information now. Either way management adds value by enabling the organization to make a more informed decision on accepting accelerating staging or rejecting an investment opportunity. Management may also want to explore whether a strategic move may create value by supporting an existing product through strengthening the positioning of the underlying technology. Those investments are unlikely to create positive payoffs on their own but will create value for the firm by preserving an existing market stake. Obviously the assumptions as to how good the protective effect will be and how much the revenue stream can be conserved will drive the value of these options as well as the critical value to invest in strategic moves of this nature. Management may consider the development of improved second- or third-generation products to fight loss of market share from competitors but 175 176 REAL OPTIONS IN PRACTICE then in that case also .