Digital Transformation and Real Options: Evaluating the Investment in Cloud ERP

Abstract

The purpose of this research is to explore and advance the knowledge regarding digital transformation. Toward this end, this paper is focused on the valuation of the assessment methodologies of cloud ERP projects. The investment in digitalization systems entails high levels of uncertainty, which gives these investment projects a high strategic value. The importance of emergent digitalization in ERP systems has made it necessary to use assessment tools that consider strategic information as well as financial information. In this paper, the real options methodology, specifically the option to defer, is proposed to account for the strategic value of investment projects in digitalization. In this sense, an empirical study is conducted by applying the binomial option pricing model to real data on the costs and revenue of investing in cloud ERP to study its viability.