A Review of the Applicability of Classical and Extension of Fuzzy Logic Approaches to Project Decision-Making using Real Options

Abstract

Introduction: In this study, a review of fuzzy implementation to Real Options Approach (ROA) theory where the applicability of classical and extended theories of “fuzziness” studied. Background: ROA allows taking into account the value of some sources of managerial flexibility and therefore assessing a more accurately project value. The positive value of flexibility results from limiting the impacts of adverse events while taking advantage of positive ones. One of the main lessons is that uncertainty adds value in the presence of flexibility. Ambiguous parameters that have a significant effect on the project value are usually represented as fuzzy sets using Zadeh's classical theory of Fuzzy logic (also termed "type-1"). However, there have been so many derivatives, and expansions of the fuzzy set theories developed by different researchers. Dealing with uncertainty can be manifested in the different mechanism of fuzziness. Objective: The objective of this review is to identify the research gap as well as provide an elementary guide to the applicability of different varieties of classical and extended applicability of fuzziness to ROA when evaluating project investment. Methods: After a generic review of the progress of ROA theory and fuzzy approaches by researchers This paper reviews the applicability of ROA to fuzzy sets (classical and extended) implementation to decision-making for large projects where project timing and uncertainty are key parameters affecting the project value Results: After reviewing the applicability of each of the classical and extended theories of fuzzy logic to ROA, a tabular format shows the result of this study summarizing the scenario, showing the applicability of different techniques. Conclusion: Most of the reviewed techniques of fuzzy implementation to ROA approach, still based on the classical theory of fuzzy logic. Implementation of more extended techniques has a potential of enhancing the outcome of such research.