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Abstract:
Justification of investments in information technologies is an important research topic in the information systems area. Several approaches have been proposed. One of these highlights the deficiencies of traditional economic justification based on net present value, and proposes the use of techniques based on financial option pricing theory. This paper examines the relationship between project risk and option values of investments in new information technologies and illustrates how this relationship is significantly different from well-known results in the case of financial option pricing. Conditions for determining the desirability of risky projects are derived.
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Ram L. Kumar
Ram L. Kumar is Assistant Professor in the Department of MIS and Operations at the Belk College of Business Administration, the University of North Carolina, Charlotte. He received his B.Tech. and Post Graduate Diploma in Management from the Indian Institute of Technology, Madras, and the Indian Institute of Management, Bangalore, respectively. He has worked for five years in information systems development and management. He received his Ph.D. from the University of Maryland in 1993, where he was the recipient of the Frank T. Paine Award for Academic Merit. His research has appeared or is forthcoming in Computers & Operations Research, International Journal of Production Economics, Journal of Management Information Systems, and several conference proceedings. His research interests include economics of investments in technology, security and control in information systems, and the interface between MIS and operations management. His research has been funded by organizations such as the U.S. Department of Commerce and the Maryland Industrial Partnerships Scheme.
