Evaluating IT Investment Using a Hybrid Approach of Fuzzy Risk Analysis and Real Options

Real option valuation is a useful alternative approach for evaluating IT investment in uncertain environment. However, utilizing this method in practice would be a challenging task, because it is usually difficult to obtain a precise estimation on several required parameters. This paper develops a new methodology for valuating IT investment based on real options and fuzzy risk analysis. Fuzzy sets theory is able to well formulate the uncertainty of the expected payoffs from an investment, and then help decision makers make better valuation and justification of the target investment without complex mathematical calculation.