Investigating the Impact of Real Options on IT Project Value: The Moderating Effect of Project Scope, Purpose and Span

Abstract

While literature on information technology (IT) investment evaluation through Real Option analysis has acknowledged that different types of IT projects might encompass diverse real option value, the majority of the research treats IT projects as a homogeneous group. Little research has been conducted to empirically test and compare different IT project types and examine whether their option value varies. This study attempts to fulfill this gap. Its aim is to investigate whether the impact of three types of options (growth, stage and deferral) on the perceived IT project value is moderated by project type. Using data collected from 109 firms in a European empirical study, results indicate that Real Options are perceived by managers as significant in specific IT project types. Drawing on Real Options theory and IS classification, the study empirically compares different IT settings and examines their respective embedded option value based on managers’ views. Results show that the IT project scope, purpose and span moderate the effect that the presence of Real Options has on the project value.