COVID-19 VACCINE PRODUCTION PROJECT VALUATION USING THE METHOD OF REAL OPTIONS ANALYSIS

• Main Author: Vega Audrey, Claresta
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/55014
• Institution: Institut Teknologi Bandung

COVID-19 pandemic had spread all over the world including Indonesia. This pandemic has affected many sectors in life such as public health, economy, education, and others. Due to this tragedy, the government, pharmaceuticals company, and other institutions are trying to create a strategy to mitigate the COVID-19 pandemic. One of the ways to mitigate the pandemic is to establish a vaccination program. The Ministry of Health of Indonesia had made the vaccination program with the purpose to achieve herd immunity in Indonesia and build bilateral and multilateral agreements to source the vaccines, which are the ready-to-use vaccines and vaccine bulks that will be processed by the pharmaceutical industry in Indonesia. The vaccine production project is complex. From the investment side, this project needs big capital. For that reason, it is crucial to do project valuation which might be considered by investors or those who have the authority over the project. This study will evaluate if the COVID-19 production project is worthwhile to be executed using the method of real options analysis. Real options analysis accounts for any existing managerial flexibility during the complex project in the future. The model that is used for real options analysis in this study is the binomial lattice from Brandao, Dyer, and Hahn's research. The reason this model was used is that it is relatively effective, easy to understand the concept by practitioners, and computationally cost-efficient. The steps in this model include determining the project value which can be calculated from the expected present value of project cash flows, constructing the binomial lattice of project value with the estimated parameters, until implementing the backward steps method on the binomial lattice to obtain the project value with real option on a certain time of implementation. Implementation of three types of options which are the option to buyout, divest, and continue in this study provides an increase in project net present value which was attained because of creating strategy and option to face the uncertainty during project execution in the future. The net present value of the project with option and strategy which will be the output from the binomial lattice model can give a mathematical point of view and help the authorities to consider and plan in executing the COVID-19 vaccine production project.