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A robustness framework for monitoring real options under uncertainty

  • Driouchi, Tarik
  • Leseure, Michel
  • Bennett, David
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    This paper presents a problem structuring methodology to assess real option decisions in the face of unpredictability. Based on principles of robustness analysis and scenario planning, we demonstrate how decision-aiding can facilitate participation in projects setting and achieve effective decision making through the use of real options reasoning. We argue that robustness heuristics developed in earlier studies can be practical proxies for real options performance, hence indicators of efficient flexible planning. The developed framework also highlights how to integrate real options solutions in firms' strategic plans and operating actions. The use of the methodology in a location decision application is provided for illustration.

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    Article provided by Elsevier in its journal Omega.

    Volume (Year): 37 (2009)
    Issue (Month): 3 (June)
    Pages: 698-710

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    Handle: RePEc:eee:jomega:v:37:y:2009:i:3:p:698-710
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    7. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    8. Alessandri, Todd M. & Ford, David N. & Lander, Diane M. & Leggio, Karyl B. & Taylor, Marilyn, 2004. "Managing risk and uncertainty in complex capital projects," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(5), pages 751-767, December.
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    12. Sounderpandian, Jayavel & Prasad, Sameer & Madan, Manu, 2008. "Supplies from developing countries: Optimal order quantities under loss risks," Omega, Elsevier, vol. 36(1), pages 122-130, February.
    13. Martzoukos, Spiros H. & Trigeorgis, Lenos, 2002. "Real (investment) options with multiple sources of rare events," European Journal of Operational Research, Elsevier, vol. 136(3), pages 696-706, February.
    14. Ormerod, RJ, 1998. "Putting Soft OR Methods to Work: Information Systems Strategy Development at Palabora," Omega, Elsevier, vol. 26(1), pages 75-98, February.
    15. Bruce Kogut & Nalin Kulatilaka, 1994. "Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network," Management Science, INFORMS, vol. 40(1), pages 123-139, January.
    16. White, Leroy & Bourne, Humphrey, 2007. "Voices and values: Linking values with participation in OR/MS in public policy making," Omega, Elsevier, vol. 35(5), pages 588-603, October.
    17. Alex Triantis & Adam Borison, 2001. "Real Options: State Of The Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(2), pages 8-24.
    18. Rosenhead, Jonathan, 1981. "Operational research in urban planning," Omega, Elsevier, vol. 9(4), pages 345-364.
    19. Bennett, DJ & Forrester, PL & Hassard, JS, 1990. "An application of decision process modelling to manufacturing system design," Omega, Elsevier, vol. 18(1), pages 23-33.
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