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The “True” Cost of Mitigating Commodity Price Volatility: Insights from Total Cost of Ownership and Real Options Approach

In: The Nature of Purchasing

Author

Listed:
  • Roberta Pellegrino

    (Politecnico di Bari)

  • Barbara Gaudenzi

    (University of Verona)

  • George A. Zsidisin

    (University of Missouri)

Abstract

Many firms have an array of available approaches for reducing financial losses caused by commodity price changes. This chapter provides guidance for more accurately measuring the potential financial effects of commodity price risk mitigation approach selection. Based upon two prominent methodologies, namely total cost of ownership (TCO) and real options approach (ROA), this chapter illustrates how commodity price risk mitigation strategies can be analyzed with respect to their effect on costs and performance. A practical example is provided to illustrate how TCO and ROA can provide useful insight into measuring the costs and benefits related to mitigating the effects of commodity price volatility.

Suggested Citation

  • Roberta Pellegrino & Barbara Gaudenzi & George A. Zsidisin, 2020. "The “True” Cost of Mitigating Commodity Price Volatility: Insights from Total Cost of Ownership and Real Options Approach," Management for Professionals, in: Florian Schupp & Heiko Wöhner (ed.), The Nature of Purchasing, pages 161-178, Springer.
    • Handle: RePEc:spr:mgmchp:978-3-030-43502-8_7
    DOI: 10.1007/978-3-030-43502-8_7
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