QUT ePrints

Valuing technology investments: use real options thinking but forget real options valuation

Steffens, Paul R. & Douglas, Evan J. (2007) Valuing technology investments: use real options thinking but forget real options valuation. International Journal of Technoentrepreneurship, 1(1), pp. 58-77.

View at publisher

Abstract

Real options valuation (ROV) has recently been proposed as a promising solution to the deficiencies of traditional valuation methods when facing risky technology investments or ventures. Indeed ‘real option thinking’ - the managerial flexibility to capitalise on opportunities when they arise and/or to minimise the impact of threats - is precisely what is needed when faced with the uncertain future of technology investments. Notwithstanding this we argue that traditional decision tree analysis methods are preferred to ROV techniques when valuing technology investments that contain ‘real options’. Our reasoning is twofold. First, ROV techniques provide a sophisticated treatment of market risks, but do not deal with firm-specific risks. However, the elevated risk facing technology ventures is predominantly firm-specific risk, and these ventures face only about average levels of market risk. Second, ROV has a severe practical limitation in the context of new technology ventures. Normally, the favoured approach when using ROV to value investments is to use the ‘market asset disclaimer’ assumption. The starting point is to value the venture/project in the absence of the ‘real options’ using traditional discounted cash flow techniques (to establish the value of the underlying asset). ROV analysis then adjusts this valuation to take account of the real options. But the first step makes no sense for technology ventures because these ‘real options’ are an integral part of the venture.

Impact and interest:

Citation countsare sourced monthly from Scopus and Web of Science® citation databases.

These databases contain citations from different subsets of available publications and different time periods and thus the citation count from each is usually different. Some works are not in either database and no count is displayed. Scopus includes citations from articles published in 1996 onwards, and Web of Science® generally from 1980 onwards.

Citations counts from the Google Scholar™ indexing service can be viewed at the linked Google Scholar™ search.

Full-text downloads:

1,578 since deposited on 16 Mar 2007
339 in the past twelve months

Full-text downloadsdisplays the total number of times this work’s files (e.g., a PDF) have been downloaded from QUT ePrints as well as the number of downloads in the previous 365 days. The count includes downloads for all files if a work has more than one.

ID Code: 6519
Item Type: Journal Article
Keywords: Business Valuation, Real Options Valuation, Paul Steffens, Evan Douglas, Entrepreneurship, Technology
DOI: 10.1504/IJTE.2007.013270
ISSN: 1746-5389
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Financial Accounting (150103)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BUSINESS AND MANAGEMENT (150300)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BUSINESS AND MANAGEMENT (150300) > Small Business Management (150314)
Divisions: Current > Research Centres > Australian Centre for Entrepreneurship
Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Management
Copyright Owner: Copyright 2007 Inderscience Publishers
Copyright Statement: Reproduced in accordance with the copyright policy of the publisher.
Deposited On: 16 Mar 2007
Last Modified: 29 Feb 2012 23:35

Export: EndNote | Dublin Core | BibTeX

Repository Staff Only: item control page