Technology Investment Decision-Making under Uncertainty

Innovations involving information technology (IT) provide potentially valuable investment opportunities for industry and government organizations. Significant uncertainties are associated with decision-making for IT investment though, a problem that senior executives have been concerned about for a...

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Main Authors: KAUFFMAN, Robert J., LIU, Jun, MA, Dan
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2015
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Online Access:https://ink.library.smu.edu.sg/sis_research/2473
https://ink.library.smu.edu.sg/context/sis_research/article/3472/viewcontent/TechnologyInvestmentDecision_2015_av.pdf
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Institution: Singapore Management University
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spelling sg-smu-ink.sis_research-34722020-12-07T06:44:45Z Technology Investment Decision-Making under Uncertainty KAUFFMAN, Robert J. LIU, Jun MA, Dan Innovations involving information technology (IT) provide potentially valuable investment opportunities for industry and government organizations. Significant uncertainties are associated with decision-making for IT investment though, a problem that senior executives have been concerned about for a long time. The uncertainties include consumer, market and regulatory responses, IT-driven changes in operational and transactional performance, technology standards and competition, and future market conditions. All these things have an impact on organizations’ willingness to adopt. As a result, traditional capital budgeting, investment experience, and intuition have not been very effective in IT investment decision-making. We propose a new option-based stochastic valuation modeling approach for IT investment under uncertainty that incorporates a mean reversion process to capture cost and benefit flow variations over time. We apply the proposed approach in two industry settings: to a largescale IT investment in the consolidation of data marts at a major airline, and to a mobile payment system infrastructure investment on the part of a start-up. The applications supported the evaluation of the proposed methods, and offered some illustrations about the kinds of managerial insights that can be obtained. We also report on several extensions that demonstrate how the creation of useful management findings from the modeling approach can be supplemented with project value sensitivity analysis and the use of simulation-based least-squares Monte Carlo valuation. The findings are useful to assess the power and value of the approach. 2015-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/sis_research/2473 info:doi/10.1007/s10799-014-0212-2 https://ink.library.smu.edu.sg/context/sis_research/article/3472/viewcontent/TechnologyInvestmentDecision_2015_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Computing and Information Systems eng Institutional Knowledge at Singapore Management University Decision-making under uncertainty Economic analysis IT investment Mean reversion process Mobile payments Real option analysis Technology valuation Computer Sciences Management Information Systems Technology and Innovation
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Decision-making under uncertainty
Economic analysis
IT investment
Mean reversion
process Mobile payments
Real option analysis
Technology valuation
Computer Sciences
Management Information Systems
Technology and Innovation
spellingShingle Decision-making under uncertainty
Economic analysis
IT investment
Mean reversion
process Mobile payments
Real option analysis
Technology valuation
Computer Sciences
Management Information Systems
Technology and Innovation
KAUFFMAN, Robert J.
LIU, Jun
MA, Dan
Technology Investment Decision-Making under Uncertainty
description Innovations involving information technology (IT) provide potentially valuable investment opportunities for industry and government organizations. Significant uncertainties are associated with decision-making for IT investment though, a problem that senior executives have been concerned about for a long time. The uncertainties include consumer, market and regulatory responses, IT-driven changes in operational and transactional performance, technology standards and competition, and future market conditions. All these things have an impact on organizations’ willingness to adopt. As a result, traditional capital budgeting, investment experience, and intuition have not been very effective in IT investment decision-making. We propose a new option-based stochastic valuation modeling approach for IT investment under uncertainty that incorporates a mean reversion process to capture cost and benefit flow variations over time. We apply the proposed approach in two industry settings: to a largescale IT investment in the consolidation of data marts at a major airline, and to a mobile payment system infrastructure investment on the part of a start-up. The applications supported the evaluation of the proposed methods, and offered some illustrations about the kinds of managerial insights that can be obtained. We also report on several extensions that demonstrate how the creation of useful management findings from the modeling approach can be supplemented with project value sensitivity analysis and the use of simulation-based least-squares Monte Carlo valuation. The findings are useful to assess the power and value of the approach.
format text
author KAUFFMAN, Robert J.
LIU, Jun
MA, Dan
author_facet KAUFFMAN, Robert J.
LIU, Jun
MA, Dan
author_sort KAUFFMAN, Robert J.
title Technology Investment Decision-Making under Uncertainty
title_short Technology Investment Decision-Making under Uncertainty
title_full Technology Investment Decision-Making under Uncertainty
title_fullStr Technology Investment Decision-Making under Uncertainty
title_full_unstemmed Technology Investment Decision-Making under Uncertainty
title_sort technology investment decision-making under uncertainty
publisher Institutional Knowledge at Singapore Management University
publishDate 2015
url https://ink.library.smu.edu.sg/sis_research/2473
https://ink.library.smu.edu.sg/context/sis_research/article/3472/viewcontent/TechnologyInvestmentDecision_2015_av.pdf
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