Real options thinking
On This Lesson 4 topics
This lesson is planned. The outline below lists the topics it will cover. The full lesson has not been published yet.
In this lesson
value flexibility and the cost of keeping a decision open.
Planned topics
- An option is the right, not the obligation, to do something later.
- Paying a small amount now (an abstraction, a pilot) can avoid a large commitment under uncertainty.
- Estimate the cost of keeping open against the cost of committing wrongly, and the likelihood of change.
- Exit cost matters: a decision that is cheap to reverse needs less analysis.
Draft outline details
Demonstration
a decision tree: commit now to vendor A at lower unit price, or pay for an abstraction layer and pilot two vendors; probabilities and costs on each branch (state assumptions).
Check your understanding
When is paying to keep a decision open worth it?
Show answer
When uncertainty is high and a wrong commitment is expensive to reverse.
Practice
Apply this lesson with the module's lab, exercises and quiz.
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