Research On The Appraisal Of Value Of IT Project Investments Based On Real Options Theory

Deep research on options in real investment under uncertainty is done in this paper. A new economic evaluation method based on information technology (IT) project investment is established. A real options model appropriate for IT project investment is put forward and the method how to estimate the parameters are ascertained.The first part of the article briefly introduces the background, meaning, the research methods, the content and the frame of the paper. It makes a detailed statement and appraisement of real options theory and IT project investment theory to the domestic and foreign.The second part makes a review to the economic evaluation method both on the domestic and foreign IT project investment and real options theory. It makes a research in-depth of the conventional economic evaluation method in IT project investments. It makes a review of applying theory, research of model and methods of parameters estimation in real options method. By comparing conventional NPV method with real options method, it analyses the disadvantages of NPV method and the advantages of real options method, also the relation between them.The third part of the paper focuses on the applicability of real options method in IT project investments. This part analyses the characteristics of IT project investments, which includes uncertainty, irreversibility, flexibility, phases and integration. Then it makes clear that real options theory is appropriate for evaluating IT project investments in light of empirical studies. It also summarizes the types of real options in IT project investments.The fourth part of the paper designs the evaluation framework for IT project investments. It gives the extend NPV framework based on real options theory at first, then points out the related parameters of NPV model and compound options. It also appraises the calculation process and conclusions of ENPV framework.At last, the paper focuses on a real project and further discussion of the application. This chapter applies the new method which be founded in this paper...