“…people who were
right a lot of the time
were people who often
changed their minds.”
Moral of the story?
Genius. Idea. Smart. Plan A, Luck. Vision
+ Common sense + Hard work + Baby
steps + Continuos feedback + Constant
steering + Plan B + Plan C +…
Assumes and expects all knowledge and
Upfront decisions => Comfort, but no
Single decision-point => Stuck with it!
Prefer being wrong (“Bad Decision”) than
being uncertain (“No Decision”) !
The notion of real options was developed from Myers’ (1977)
seminal idea that one can view ﬁrms’ discretionary investment
opportunities as a call option on real assets, in much the same
way as a ﬁnancial call option provides decision rights on ﬁnancial
By way of analogy, a real option has as its underlying asset the
gross project value of expected operating cash ﬂows; its exercise
price is the investment required to obtain this underlying asset;
and the time to maturity is the period of time during which the
decision maker can defer the investment before the investment
Formally stated, real options are investments in real assets, as
opposed to ﬁnancial assets, which confer the ﬁrm the right, but
not the obligation, to undertake certain actions in the future.
REAL OPTIONS THEORY - Jefrey Reuer & Tony Wong
What is a Real Option?
An alternative or a choice
‘Real’ because it pertains to real
Defer commitments till the last
Real Options Meme
Never commit early unless
you know why
Agile, Lean and Real Options
Agile = Change
Lean = Efﬁciency
Real Options = Effectiveness
Using Real Options
For each problem, look at all the options
Each option has some conditions, cost and expiry
Put all options on a timeline
Identify how long you can hold off a decision
Until that time, keep looking for new options
Decisions are made when options expire
Once you need to act…act quickly!
Real options are everywhere!
Treat is like a decision-making aid
Remember the Real Options
Commitment - A Novel About Managing Project Risk, http://commitment-
Strategy as a Portfolio of Real Options - Timothy A. Luehrman, http://hbr.org/
Making Real Options Really Work - Alexander B. van Putten and Ian C. MacMillan,
A Real-World Way to Manage Real Options - Tom Copeland and Peter Tufano, http://
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