Value creation, risk management, and real options

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Value creation, risk management, and real options

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Marcel Boyer ()
Peter Christoffersen ()
Pierre Lasserre ()
Andrey Pavlov ()

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Abstract

The real options approach considers strategic management and decision-making as a process aimed at actively reducing exposition to downside risk and promoting exposition to upside opportunities. It stands at the hinge between pure finance and other areas of decision making under risk such as project evaluation, market entry and exit, organizational restructuring and re-engineering, technology adoption, climate change and biodiversity decisions, etc. The approach underlines a frame of mind and uses methodologies that appeal to a wide array of managers, thus providing a common language. Real options have applications in many areas that are central to modern corporations: market coverage and development, finance, human resources management, technology management, R&D and knowledge management, etc. Thinking in terms of real options represents a major development in strategic but remains relatively unknown in spite of its adoption by firms such as Airbus, GE, Hewlett Packard, Intel, Toshiba and others. Nonetheless, as shown in the academic literature and as argued in some of the quotes below, the contribution of higher level managers to the value of a firm lies in the creation and the exercise of real options. Indeed the value of strategic management itself can be assessed that way. At a more macroeconomic level, the efficiency of financial systems rests primarily on proper risk assessment and management in project evaluation. The real options approach is the crucial analytical tool to fulfill such a need and act as a link between the financial and the real sectors.

Lorsqu'on applique une approche options réelles à la gestion, à la gestion stratégique en particulier, c'est que l'on perçoit la prise de décision stratégique comme un processus visant à la fois la réduction active de l'exposition au risque baissier et l'augmentation de l'exposition aux opportunités favorables. L'approche des options réelles se situe entre la finance pure et les autres domaines de la prise de décision en situation risquée tels l'évaluation de projet, l'entrée et la sortie d'un marché, la restructuration et la ré-ingénierie organisationnelle, l'adoption de nouvelles technologies, les décisions sur le changement climatique et la biodiversité, etc.. Elle souligne un état d'esprit et utilise des méthodologies auxquelles souscrivent beaucoup de gestionnaires, offrant ainsi un langage commun. Les options réelles concernent plusieurs domaines primordiaux des entreprises modernes : la couverture et le développement du marché, la finance, la gestion des ressources humaines, la gestion de la technologie, la R&D, la gestion des connaissances, etc.. Cette approche représente un changement important dans la gestion stratégique mais demeure relativement peu connue malgré son adoption par des entreprises telles que Airbus, GE, Hewlett Packard, Intel, Toshiba et autres. Néanmoins, comme l'indique la littérature académique et le soulignent certaines des citations ci-dessous, la contribution des gestionnaires à la valeur de l'entreprise peut se mesurer à l'aune des options qu'ils font surgir et qu'ils gèrent. À un niveau plus macroéconomique, l'efficacité des systèmes financiers repose essentiellement sur une bonne évaluation des risques et de la gestion des projets. Les options réelles constituent l'outil analytique crucial pour cette évaluation et font ainsi le lien entre secteur financier et secteur réel.

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Paper provided by CIRANO in its series CIRANO Burgundy Reports with number 2003rb-02.

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Date of creation: 01 Mar 2003
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Handle: RePEc:cir:cirbur:2003rb-02

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This paper has been announced in the following NEP Reports:

NEP-FIN-2003-07-13 (Finance)
NEP-RMG-2003-07-13 (Risk Management)

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