Simple decision making criterion as real options

The purpose of this paper is providing a simple decision making criterion under uncertainty for the managers who are not so familiar with statistics. We introduce a new decision-making index d, which is the expectation of NPV normalized by its standard deviation. We show the break-even point, d = D* = 0.276 occurs when NPV is equal to ROV (real option value). Using D*, we can make more sophisticated decisions considering opportunity loss and cost of uncertainty. This criterion is useful when NPV lies near zero or uncertainty is large. We provide an example that shows the reasonableness of using this decision criterion.