Valuation of Real Options as Competitive Prototyping in System Development

Abstract

A Real Options Valuation Model is developed to recommend how to valuate technology when benefits cannot be measured in monetary value. Expected values of effectiveness are used to select the preferred alternative. The methodology is illustrated using three guidance system technologies in the Army s Javelin program. The strategy created multiple real options that gave the Army the right (without the obligation) to select one guidance system technology based on the outcome of technology development tests. Results indicate the Army paid less than the total value of the options, but could have increased net savings by paying different amounts to test each alternative. The analysis method provides a logical and defendable approach to the analysis of alternatives under technology development uncertainty.

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Document Details

Document Type
Technical Report
Publication Date
Jul 01, 2014
Accession Number
ADA608957

Entities

People

  • David N. Ford
  • Diana I. Angelis
  • John T. Dillard

Organizations

  • Defense Acquisition University

Tags

Communities of Interest

  • Counter WMD
  • Human Systems
  • Weapons Technologies

DTIC Thesaurus Topics

  • Acquisition
  • Anti-Tank Missiles
  • Armored Personnel Carriers
  • Business Administration
  • Capital Investments
  • Contracts
  • Economic Analysis
  • Economics
  • Investments
  • Military Acquisition
  • Operations Research
  • Procurement
  • Product Development
  • Product Prototyping
  • Risk Management
  • Systems Engineering
  • Systems Management

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