Project Valuation Using Real Options: A Practitioner's Guide

Business leaders are frequently faced with investment decisions on new and ongoing projects. The challenge lies in deciding what projects to choose, expand, contract, defer, or abandon, and which method of valuation to use is the key tool in the process. This title presents a step-by-step, practical approach to real options valuation to make it easily understandable by practitioners as well as senior management. This systematic approach to project valuation helps you minimize upfront investment risks, exercise flexibility in decision making, and maximize the returns.

Whereas the traditional decision tools such as discounted cash flow/net present value (DCF/NPV) analysis assume a “fixed” path ahead, real options analysis offers more flexible strategies. Considered one of the greatest innovations of modern finance, the real options approach is based on Nobel-prize winning work by three MIT economists, Fischer Black, Robert Merton, and Myron Scholes.

Key Features:

• Shows you how to achieve strategic alignment of projects, increase project flexibility and sustain competitive advantage
• Explains why traditional valuation methods such as DCF/NPV and decision tree analyses are no longer effective in today’s uncertain world
• Walks you through each step of using real options to value projects regardless of the reader’s beginning financial knowledge and helps the practitioner communicate the results to the senior management
• Presents multiple scenarios and examples that show the true value of using real options as well as the challenges, pitfalls and success stories of this valuation technique
• Illustrates the usefulness of real options to value purchases of special features in capital equipment, temporarily shutting down and restarting equipment, selecting ingredients of a product or service, changing the product mix, and much more

About the Authors

Dr. Prasad Kodukula, PMP, is President of Kodukula & Associates, Inc. and a management teacher, executive coach, and motivational speaker with nearly 20 years of professional experience. He has spoken in 15 countries to a total audience of more than 100,000 people on project management, project portfolio management, and leadership skills. His clients include 20 Fortune 100 companies and the U.S. government. Dr. Kodukula is also co-founder and president of 2Ci, where he is involved in developing environmental and homeland security technologies. In 2005, 2Ci received the Innovate Illinois award for being the most innovative small business in the environmental category in Illinois. Dr. Kodukula was recognized by the U.S. Environmental Protection Agency and the Kansas Department of Health and Environment for his outstanding contributions in environmental science and engineering. He holds degrees from the Illinois Institute of Technology, Cornell University, and Rutgers University. He is a contributing author on four books and has co-authored three books and more than 40 technical articles.

Chandra Papudesu, M.S., has more than eight years of application development, project management and consulting experience spanning every phase of the software life cycle. As Director of Software Services at a software product company, he oversees projects for customers in multiple industries including healthcare, retail, pharmacy, and banking.

Mr. Papudesu also served as project manager for a software services and product company, where his team designed and developed custom enterprise software for clients in the energy, banking, and insurance sectors. He holds a bachelor’s degree from the Indian Institute of Technology and a master’s degree from Massachusetts Institute of Technology, both in engineering.