Real Options: The Value Added through Optimal Decision Making

One of the primary responsibilities of a management team is to make decisions during the execution of projects so that gains are maximized and losses are minimized. Decision analysis is especially critical for projects with built-in flexibility, or options. This article explores how merging decision analysis with the well-known principles used in valuing options on financially traded assets can be further enhanced by applying an intuitive approach based on familiar concepts from the field of decision analysis.

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