Question

Posts are expected to be at least 150 words in length, well-written, APA formatted, meaningfully add to the conversation about the given topic, and incorporate material from the text and other sources into your original post and responses.

Project Analysis

You are discussing a project analysis with a co-worker. The project involves real options, such as expanding the project if successful, or abandoning the project if it fails. Your coworker makes the following statement: “This analysis is ridiculous. We looked at expanding or abandoning the project in two years, but there are many other options we should consider. For example, we could expand in one year, and expand further in two years. Or we could expand in one year, and abandon the project in two years. There are too many options for us to examine. Because of this, anything this analysis would give us is worthless.” How would you evaluate this statement? Considering that with any capital budgeting project there are an infinite number of real options, when do you stop the option analysis on an individual project?

Answer 1

Evaluation of project:

Here the co – worker makes such a statement because he need not want to jump into decisions immediately & sufficient analysis can be made because we select on the best option suitable for the organization.

When an analysis can be stopped?

• When we are sure that we have made the right decision by selecting the right option.
• When various qualitative & quantitative tools have been used to evaluate the options.
• When we know that the selected project is profitable to the organization by conducting cost benefit analysis.
• When it is approved by the top management.
• When we are sure that the selected project no way impacts the culture of the organization or any other practices.
• When we are sure that the selected option can be completed within a reasonable time frame without much difficulties.
• We must also ensure that our competitors don’t adopt a similar one.
• A decision is not made in haste & taking reasonable time frame by evaluating all the available options by following theories like economic pricing theory etc.