Real Options Theory

Abstract

The objective of this chapter is to present the real options theory (ROT) as an alternative methodology applicable to investment analyses in research and development projects (R&D). The authors intend to simulate the evaluation of an R&D project as a real option, compare real options theory outcomes to a conventional R&D project evaluation technique, and review real options theory as a trend in innovation project evaluation. The outcomes were compared to those obtained via the traditional net present value (NPV) method and a brief practical discussion regarding project management decision making is held. Finally, although ROT is still in a developmental and consolidation stage, the authors suggests that it can be used as a promising tool in the decision-making process concerning R&D projects. ROT is presented as a research field that would integrate a set of emerging management technologies, becoming a theoretical base for new tools and methods to support project management (PM) decision making.