RO Based Capital Budgeting : A Strategic Tool in New Economy

Real option is an interdisciplinary subject combining finance, strategy and IT. RO analysis is a powerful financial tool that meshes nicely with the complexities of emerging technology projects that inherently carry significant uncertainty, but also represent great potential value for the firm. RO analysis is a very exciting development in the practice of capital budgeting. RO is a new economy tool and gives a better structured decision making process for complex and interdependent investment decisions of new economy. Paper also explains limitations of RO. Real Options (RO) options approach is a method of evaluating and managing strategic investments decisions in an uncertain business environment. RO seeks to uncover and quantify a project's embedded options. Firms in the fast-growing, ever-changing industries of the new economy require dynamic approach such as RO in investment decisions. Paper also illustrates numeric example of RO. Paper discusses various approaches of using RO in adopting emerging technologies such as RFID. It also discusses various embedded options available for RFID deployment in supply chain management