Controlling Risks in ICT Investments with Real Options Thinking

Abstract

Organizations are making large investments in information communication technology (ICT). However, many are risky and are often considered runaway, because they do not meet original expectations of cost, time, or benefits. Effective management of risks in ICT projects is therefore extremely important. In this paper we propose real options (ROs) thinking for controlling risks in ICT projects. We present a framework for understanding and hedging risks in ICT projects based on the finance literature on ROs. However, existing RO models are based on quantitative analysis and the required input parameters sometimes may be difficult to be estimated for evaluating real life investment opportunities. Instead we adopt a qualitative options thinking for finding the optimum deployment strategy for an ICT project. The proposed framework is applied to a real life ICT case study showing how it can be formulated and solved.