Ekström, M A and Björnsson, H C (2005) Valuing flexibility in architecture, engineering, and construction information technology investments. Journal of Construction Engineering and Management, 131(4), pp. 431-438. ISSN 0733-9364
Abstract
When investing in information technology (IT) applications, construction managers implicitly account for the value of adding future applications to the original investment as the business and technical environment changes. A real option model links uncertainty to the value of an underlying traded asset, providing an objective measure of this managerial flexibility. A case study that investigated the value of options to extend a general contractor's software platform showed that it is possible to construct a real option model which measures the value of this flexibility, since the major risk (the architect's adoption rate) is external to the investing organization. In another case study, a contractor evaluated the value of the pilot project in view of the information it is expected to generate. Since the risks are internal, a decision analysis model is used instead of a binary option model. The results show that it is possible to quantify the value of managerial flexibility for IT investments in the architecture, engineering, and construction industry, but that the proper method to use is contingent on the nature of the investment project.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | decision theory; financial management; information technology; investments |
| Index terms: | construction industry, real option, option, architect, decision analysis, financial management, platform, case study, decision theory, information technology, construction manager, general contractor |
| Subjects: | economic analysis, profession, data collection methods, practitioner, computing systems, decision analysis, industry analysis, digital design |
| Topics: | Digital Applications, Business Strategy, Research Practice, Roles and Professions, Risk Management |
| Descriptive scope: | 4 PCTE |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here