CIMA P2 Syllabus B. Capital Investment Decision Making - Real Options - Notes 11 / 11
Real Options In Decision Making
Projects can be analysed as to how adaptable they are
The more adaptable the better - it is said to have ‘real options’
Illustration
Project — Build customised machinery (using specialist staff) - enhancing reputation in a new industry
This project is adaptable in that the increased reputation may enable the company to continue even if events turn against them on this
(Option to 'Follow on')
Illustration
Project — Use highly expensive but useful to many machinery, on new land
This project is adaptable in that the assets can be used elsewhere or along with the land relatively easy to sell
(Option to 'abandon')