Application of Real Options Theory to Software-intensive System Acquisitions
Abstract
In the Department of Defense (DoD), the typical outcome of a software acquisition program has been massive cost-escalation, delayed delivery dates, and major cuts in the planned software functionality to guarantee program success. To counter this dilemma, the DoD put forth a new weapons acquisition policy in 2003 based on an evolutionary acquisition approach to foster increased efficiency while building flexibility in the acquisition process. However, the evolutionary acquisition approach often relies on the spiral development process, which assumes that the end-state requirements are known at the inception of the development process, a misrepresentation of reality in the acquisition of DoD software-intensive weapon systems. This article presents a framework to address the issue of requirements uncertainty as it relates to software acquisition. The framework is based on Real Options theory and aims at mitigating risks associated with requirements volatility based on the technology objectives and constraints put forth by the customer at the acquisition decision-making level. The presentation includes 33 briefing charts.
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 22, 2009
- Accession Number
- ADA528123
Entities
People
- Albert Olagbemiro
- Johnathan C. Mun
- Mantak Shing
Organizations
- Naval Postgraduate School