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A robustness framework for monitoring real options under uncertainty

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  • Driouchi, Tarik
  • Leseure, Michel
  • Bennett, David

Abstract

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.

Suggested Citation

  • Driouchi, Tarik & Leseure, Michel & Bennett, David, 2009. "A robustness framework for monitoring real options under uncertainty," Omega, Elsevier, vol. 37(3), pages 698-710, June.
    • Handle: RePEc:eee:jomega:v:37:y:2009:i:3:p:698-710
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    5. Bednyagin, Denis & Gnansounou, Edgard, 2012. "Estimating spillover benefits of large R&D projects: Application of real options modelling approach to the case of thermonuclear fusion R&D programme," Energy Policy, Elsevier, vol. 41(C), pages 269-279.
    6. Hassanzadeh, Farhad & Modarres, Mohammad & Nemati, Hamid R. & Amoako-Gyampah, Kwasi, 2014. "A robust R&D project portfolio optimization model for pharmaceutical contract research organizations," International Journal of Production Economics, Elsevier, vol. 158(C), pages 18-27.
    7. Lin, Tyrone T. & Huang, Shio-Ling, 2011. "Application of the modified Tobin's q to an uncertain energy-saving project with the real options concept," Energy Policy, Elsevier, vol. 39(1), pages 408-420, January.
    8. Martzoukos, Spiros H. & Zacharias, Eleftherios, 2013. "Real option games with R&D and learning spillovers," Omega, Elsevier, vol. 41(2), pages 236-249.
    9. Bednyagin, Denis & Gnansounou, Edgard, 2011. "Real options valuation of fusion energy R&D programme," Energy Policy, Elsevier, vol. 39(1), pages 116-130, January.
    10. Hassanzadeh, Farhad & Collan, Mikael & Modarres, Mohammad, 2011. "A technical note on "A fuzzy set approach for R&D portfolio selection using a real options valuation model" by Wang and Hwang (2007)," Omega, Elsevier, vol. 39(4), pages 464-465, August.
    11. Gabrel, Virginie & Murat, Cécile & Thiele, Aurélie, 2014. "Recent advances in robust optimization: An overview," European Journal of Operational Research, Elsevier, vol. 235(3), pages 471-483.
    12. Lehr, Thomas & Lorenz, Ullrich & Willert, Markus & Rohrbeck, René, 2017. "Scenario-based strategizing: Advancing the applicability in strategists' teams," Technological Forecasting and Social Change, Elsevier, vol. 124(C), pages 214-224.
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    15. Lin, Tyrone T. & Huang, Shio-Ling, 2010. "An entry and exit model on the energy-saving investment strategy with real options," Energy Policy, Elsevier, vol. 38(2), pages 794-802, February.
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