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How option thinking can improve software platform decisions

Taudes, Alfred and Feurstein, Markus and Mild, Andreas (1999) How option thinking can improve software platform decisions. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 38. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

In recent years, the use of option pricing models to support IT investment decisions has been proposed in the MIS literature. In this paper, we discuss the practical advantages of such techniques for the selection of a software platform. First, we argue that traditional quantitative approaches to a cost-benefit analysis give only a partial picture of such decision situations: due to the long planning horizon required because of the time-consuming and resource-intensive implementation process, it is not possible to exactly predict which applications will, in fact, run on the system over time. Thus, the investor is faced with the problem of valuing "implementation opportunities". We then compare different valuation techniques for this task and discuss their respective advantages and drawbacks. The practical advantages of employing such models are demonstrated by describing a real-life case study where option pricing models were used for deciding whether to continue employing SAP R/2 or to switch to SAP R/3. (author's abstract)

Item Type: Paper
Keywords: software platform / strategic IS management / real options / cost-benefit analysis / SAP R/3 / capital budgeting
Divisions: Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Marketing > Service Marketing und Tourismus
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Depositing User: Repository Administrator
Date Deposited: 05 Mar 2002 12:28
Last Modified: 15 Sep 2010 00:09
URI: http://epub.wu.ac.at/id/eprint/1134

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