Applications of Real Options Analysis in Aviation Security Investments

Abstract

The interest upon real options method amplified in the last decade due to the higher level of uncertainty faced by some organizations (from the private and also the public sector) when the decision to make a strategic investment is required (in a competitive environment) or it is a external requirement of the organizational environment (ensuring security standards). The process of assessment of the option is developed by evaluating the potential benefits associated with the three possible scenarios under expansion, contract and wait options. The value of the real option is the result of the fuzzy mean. The possibility of obtaining values for each option permits the management to compare and choose the best decisions for efficient investment. The evaluation and investment planning aims to make better use of funds by reducing operating costs and uncertainty for potential gains and substantiate predictions about the performance of the strategy.