The real options approach can help company leaders make much better decisions than they would if they employed the traditional DCF method alone. But in practice, even the use of these two techniques together does not give enough visibility to issues that should be paramount for executives who have to decide about funding innovative projects. In addition, these evaluation tools do not indicate how initiatives should be managed to give them the best chance for success. Instead they lead organizations to manage with a focus on preventing failure rather than enabling success.
This research note suggests a way to improve managerial support for innovative initiatives.
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