Authors : Rabii El Ghorfi, Mohamed El Aroussi and Mohamed Ouadou
Abstract: This study presents an overview of ROA (Real Option Analysis) for valuating investments in IT (Information Technology) projects. For this purpose, we show how ROA assists the people in charge of the IT to take the most profitable investment decisions and how it encourages managerial flexibility. Then, we detail the mathematical basis of ROA in particular the asset variation modeled by Brownian motions and the computation of the net present value of IT projects. We also classify the ROA literature with the focus of the technique used. Lastly, we discuss the limits of the theory behind ROA. We distinguish between the limits coming from the assumptions related to the mathematical model and the limits coming from the use of intangible criteria in the pricing process. We finally conclude by reporting arguments and counter arguments of an approach based ROA from the analysis of the literature.
Rabii El Ghorfi, Mohamed El Aroussi and Mohamed Ouadou, 2018. Real Option Analysis for Valuating Investments in Information Technology Projects. Journal of Engineering and Applied Sciences, 13: 5090-5095.