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Evaluation of Cloud Computing Hidden Benefits by Using Real Options Analysis

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  • Pavel Náplava

Abstract

Cloud computing technologies have brought new attributes to the IT world. One of them is a flexibility of IT resources. It enables effectively both to downsize and upsize the capacity of IT resources in real time. Requirements for IT size change defines business strategy and actual market state. IT costs are not stable but dynamic in this case. Standard investment valuation methods (both static and dynamic) are not able to include the flexibility attribute to the evaluation of IT projects. This article describes the application of the Real Options Analysis method for the valuation of the cloud computing flexibility. The method compares costs of the on-premise and cloud computing solutions by combining put and call option valuation. Cloud computing providers can use the method as an advanced tool that explains hidden benefits of cloud computing. Unexperienced cloud computing customers can simulate the market behavior and better plan necessary IT investments.

Suggested Citation

  • Pavel Náplava, 2016. "Evaluation of Cloud Computing Hidden Benefits by Using Real Options Analysis," Acta Informatica Pragensia, Prague University of Economics and Business, vol. 2016(2), pages 162-179.
    • Handle: RePEc:prg:jnlaip:v:2016:y:2016:i:2:id:92:p:162-179
    DOI: 10.18267/j.aip.92
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