Real Option Approach for Investment Project Evaluation

The modern business environment characterized by a high level of uncertainty. The coronavirus pandemic that hit the world in 2020 has dramatically increased the level of uncertainty for a variety of markets and businesses, creating many risks that threaten the development of investment projects. Despite this fact, the global economy is slowly recovering and companies around the world continue to develop investment projects. However, the increasing level of uncertainty and the pandemic can negatively affect the evaluation process of investment projects since it is impossible to consider all the risks and potential development opportunities of the project using traditional methods of project evaluation due to limitations of the framework. Although traditional methods of investment projects evaluation are outdated in terms of flexibility and do not provide tools for project planning in a rapidly changing environment, they are still widely used in practice, remaining the main tool for project evaluation due to the fact that application of a more theoretically advanced method of real options often associated with problems of bias in risk assessment and creates additional complications such as option identification process and evaluation of discovered options.