Article: An approach to the valuation and decision of ERP investment projects based on real options

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TitleAn approach to the valuation and decision of ERP investment projects based on real options
AuthorsWu, F2
Li, HZ2
Chu, LK1
Sculli, D1
Gao, K2
KeywordsDecision-making
Enterprise resources planning (ERP)
Mixed-integer programming
Real option
Uncertainty
Issue Date2009
PublisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0254-5330
CitationAnnals Of Operations Research, 2009, v. 168 n. 1, p. 181-203 [How to Cite?]
DOI: http://dx.doi.org/10.1007/s10479-008-0365-7
AbstractThe risks and uncertainties inherent in most enterprise resources planning (ERP) investment projects are vast. Decision making in multistage ERP projects investment is also complex, due mainly to the uncertainties involved and the various managerial and/or physical constraints to be enforced. This paper tackles the problem using a real-option analysis framework, and applies multistage stochastic integer programming in formulating an analytical model whose solution will yield optimum or near-optimum investment decisions for ERP projects. Traditionally, such decision problems were tackled using lattice simulation or finite difference methods to compute the value of simple real options. However, these approaches are incapable of dealing with the more complex compound real options, and their use is thus limited to simple real-option analysis. Multistage stochastic integer programming is particularly suitable for sequential decision making under uncertainty, and is used in this paper and to find near-optimal strategies for complex decision problems. Compared with the traditional approaches, multistage stochastic integer programming is a much more powerful tool in evaluating such compound real options. This paper describes the proposed real-option analysis model and uses an example case study to demonstrate the effectiveness of the proposed approach. © 2008 Springer Science+Business Media, LLC.
ISSN0254-5330
2011 Impact Factor: 0.84
2011 SCImago Journal Rankings: 0.041
DOIhttp://dx.doi.org/10.1007/s10479-008-0365-7
ISI Accession Number IDWOS:000264317000011
ReferencesReferences in Scopus
DC Field
Value
dc.contributor.authorWu, F
dc.contributor.authorLi, HZ
dc.contributor.authorChu, LK
dc.contributor.authorSculli, D
dc.contributor.authorGao, K
dc.date.accessioned2010-09-06T07:02:08Z
dc.date.available2010-09-06T07:02:08Z
dc.date.issued2009
dc.description.abstractThe risks and uncertainties inherent in most enterprise resources planning (ERP) investment projects are vast. Decision making in multistage ERP projects investment is also complex, due mainly to the uncertainties involved and the various managerial and/or physical constraints to be enforced. This paper tackles the problem using a real-option analysis framework, and applies multistage stochastic integer programming in formulating an analytical model whose solution will yield optimum or near-optimum investment decisions for ERP projects. Traditionally, such decision problems were tackled using lattice simulation or finite difference methods to compute the value of simple real options. However, these approaches are incapable of dealing with the more complex compound real options, and their use is thus limited to simple real-option analysis. Multistage stochastic integer programming is particularly suitable for sequential decision making under uncertainty, and is used in this paper and to find near-optimal strategies for complex decision problems. Compared with the traditional approaches, multistage stochastic integer programming is a much more powerful tool in evaluating such compound real options. This paper describes the proposed real-option analysis model and uses an example case study to demonstrate the effectiveness of the proposed approach. © 2008 Springer Science+Business Media, LLC.
dc.description.natureLink_to_subscribed_fulltext
dc.identifier.citationAnnals Of Operations Research, 2009, v. 168 n. 1, p. 181-203 [How to Cite?]
DOI: http://dx.doi.org/10.1007/s10479-008-0365-7
dc.identifier.doihttp://dx.doi.org/10.1007/s10479-008-0365-7
dc.identifier.epage203
dc.identifier.hkuros150745
dc.identifier.isiWOS:000264317000011
dc.identifier.issn0254-5330
2011 Impact Factor: 0.84
2011 SCImago Journal Rankings: 0.041
dc.identifier.issue1
dc.identifier.openurl
dc.identifier.scopuseid_2-s2.0-62949170084
dc.identifier.spage181
dc.identifier.urihttp://hdl.handle.net/10722/74521
dc.identifier.volume168
dc.languageeng
dc.publisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0254-5330
dc.publisher.placeUnited States
dc.relation.ispartofAnnals of Operations Research
dc.relation.referencesReferences in Scopus
dc.subjectDecision-making
dc.subjectEnterprise resources planning (ERP)
dc.subjectMixed-integer programming
dc.subjectReal option
dc.subjectUncertainty
dc.titleAn approach to the valuation and decision of ERP investment projects based on real options
dc.typeArticle
Author Affiliations
  1. The University of Hong Kong
  2. Xi'an Jiaotong University