IT Project Investment Decision-making Based On Real Options

Compared with the traditional project, the IT project has the high uncertainty, the Multi-target as well as high risk characteristics. Taking traditional decision-making method like as DCF to evaluate IT project has many problems. Because these methods can not adjust expected cash flow in according to the change of environment, and can not determine the discount rate (anticipated repayment rate) effectively, also has not considered the competitors, as well as external economy environmental factor. Real Options Method provides solutions to these problems. This method considerers the time value of project, the policy-maker may act according to the different situation to choose whether continue, defer or cancel the investment. Overcome defects of the traditional project decision-making method, the project decision-making, preparation and implementation have a greater flexibility.In this article, firstly, makes the comparative analysis to the traditional project and the IT project, has enumerated the traditional investment evaluation method (like as DCF) and elaborated these methods basic principles, then analyzed limitations of these methods when evaluate the IT project investment. Real Options Analysis Framework has been introduced in this paper. Proved the superiority of the method through practical effect of the decision-makingIn second part, assumed the assets no longer to obey the geometry Brownian movement which is the classics supposition in traditional real options model, but Jump Process occurs under the combined action of information. The Penning-Lint Jump process are taken to describe the assets change process, this kind of model are more precise in line with the actual situation. Paper established the model in this foundation, and cited examples of the model solutionFinally, used Least-Square Monte Carlo Simulation to simulate the real options model and obtained the simulation analysis results, Simulation results showed that the precision of the more desirable. Compared to Analytical Solutions, This method saves computing resources greatly, and estimate error relative was also small. Using Least-Square Monte Carlo Simulation to simulate to the synthesis jump process in pricing IT project's real option model, which has provided one kind of new mentality for the IT project investment decision-making.