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  • Project Appraisal Under Uncertainty: An Option Based Approach

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    This document discusses using real options approaches for project appraisal under uncertainty. Traditional discounted cash flow methods like NPV and IRR have weaknesses in dealing with uncertainty and complexity. Real options are a more powerful method for evaluating projects under uncertainty as they can reflect the dynamic business environment. The document examines using real options approaches as a method for evaluating investment decisions when there is uncertainty.

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    This document discusses using real options approaches for project appraisal under uncertainty. Traditional discounted cash flow methods like NPV and IRR have weaknesses in dealing with uncertainty and complexity. Real options are a more powerful method for evaluating projects under uncertainty as they can reflect the dynamic business environment. The document examines using real options approaches as a method for evaluating investment decisions when there is uncertainty.

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    13 views1 page

    Project Appraisal Under Uncertainty: An Option Based Approach

    Uploaded by

    madhpan
    This document discusses using real options approaches for project appraisal under uncertainty. Traditional discounted cash flow methods like NPV and IRR have weaknesses in dealing with uncertainty and complexity. Real options are a more powerful method for evaluating projects under uncertainty as they can reflect the dynamic business environment. The document examines using real options approaches as a method for evaluating investment decisions when there is uncertainty.

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    Project Appraisal under Uncertainty: An Option Based Approach

    Pankaj M. Madhani
    ICFAI Business School

    EFECTIVE PROJECT MANAGEMENT, A. Varma, ed., pp. 44-53, Icfai University Press, Hyderabad,
    India, 2008
    Abstract:
    The typical project appraisal methods are based on Discounted Cash Flow (DCF)-based measures like
    Net Present Value (NPV) and Internal Rate of Return (IRR). However, they exhibit weaknesses in dealing
    with uncertainty, complexity and flexibility.

    In today’s business environment, traditional capital budgeting methods are no longer adequate to reflect
    the dynamic world of new economy. Real options are very powerful method for evaluating project under
    uncertainty. Real options approach is a method of evaluating project investment decisions in an uncertain
    business environment.

    Keywords: IRR, NPV, Project Appraisal

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