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My talk on Real Options at Intuit's Agile Day, Mar 27
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Real Options @ Work…
Tathagat Varma VP, Strategic Process Innovations and HR Innovation Labs
“stories” per story!
14
“…people who were right a lot of the time
were people who often changed their minds.”
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Moral of the story?Genius. Idea. Smart. Plan A, Luck. Vision + Common sense + Hard work + Baby steps + Continuos feedback + Constant steering + Plan B + Plan C +… fail.fail.pass.fail.fail.fail.pass.fail…SUCCESS!!! but, how???
http://steveblank.files.wordpress.com/2010/11/two-assumptions.jpg
Problems?
✴Slow ✴Rigid$$$……..??….$…???
✴Risky ✴Costly
So, why do we make such commitments?
Do we have options?
Confers ‘rights’, but not an obligation
Options represent choice
Commitment or
Option?
Traditional decision-makingAssumes and expects all knowledge and smartness upfront
Upfront decisions => Comfort, but no options :(
Single decision-point => Stuck with it!
Prefer being wrong (“Bad Decision”) than being uncertain (“No Decision”) !
Best travel choices in London?
TheoryThe notion of real options was developed from Myers’ (1977) seminal idea that one can view firms’ discretionary investment opportunities as a call option on real assets, in much the same way as a financial call option provides decision rights on financial assets.
By way of analogy, a real option has as its underlying asset the gross project value of expected operating cash flows; its exercise price is the investment required to obtain this underlying asset; and the time to maturity is the period of time during which the decision maker can defer the investment before the investment opportunity expires.
Formally stated, real options are investments in real assets, as opposed to financial assets, which confer the firm the right, but not the obligation, to undertake certain actions in the future.
REAL OPTIONS THEORY - Jefrey Reuer & Tony Wong
What is a Real Option?An alternative or a choice ‘Real’ because it pertains to real assets Defer commitments till the last responsible moment Not procrastination!!!
Real Options Meme
Options have Value
Options Expire
Never commit early unless you know why
http://commitment-thebook.com/pages/about-us
Agile, Lean and Real Options
Agile = Change Lean = Efficiency Real Options = Effectiveness
Using Real OptionsFor each problem, look at all the options
Each option has some conditions, cost and expiry
Put all options on a timeline
Identify how long you can hold off a decision
Until that time, keep looking for new options
Decisions are made when options expire
Once you need to act…act quickly!
Conclusions
Real options are everywhere! Treat is like a decision-making aid Remember the Real Options meme…
ReferencesCommitment - A Novel About Managing Project Risk, http://commitment-thebook.com/
http://www.infoq.com/articles/real-options-enhance-agility
Strategy as a Portfolio of Real Options - Timothy A. Luehrman, http://hbr.org/1998/09/strategy-as-a-portfolio-of-real-options/ar/1
Making Real Options Really Work - Alexander B. van Putten and Ian C. MacMillan, http://hbr.org/2004/12/making-real-options-really-work/ar/1
A Real-World Way to Manage Real Options - Tom Copeland and Peter Tufano, http://hbr.org/2004/03/a-real-world-way-to-manage-real-options/ar/1
http://vimeo.com/30604063
https://vimeo.com/75978656
http://theitriskmanager.wordpress.com/
https://vimeo.com/30605539
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