Technology projects are inherently risky, research shows that large IT projects successful as originally planned, only 28 percent of the time. Building flexibility or real options in a project can help this risk. In addition, the flexibility in the management of options value because the risk of loss is reduced and the head is increased. The case is based on real options analysis for an Enterprise Data Warehouse (EDW) and analytical customer relationship management (CRM) program to a large U. … Read more »

Technology projects are inherently risky, research shows that large IT projects successful as originally planned, only 28 percent of the time. Building flexibility or real options in a project can help this risk. In addition, the flexibility in the management of options value because the risk of loss is reduced and the head is increased. The case is based on real options analysis for an Enterprise Data Warehouse (EDW) and analytical customer relationship management (CRM) program at a major U.S. company. The company has a global airlines for reasons of confidentiality were covered. The data mart consolidation or EDW marginally meets the hurdle rate for the company than using a traditional net present value (NPV) analysis. However assist different tactical strategies reduce the risk of the project through the construction options in the project, and the traditional NPV is enhanced by the real value of the option. Students analyze the various deployment strategies with a binomial model compound option Excel macro, and calculate the volatility using Monte Carlo analysis in Excel. A step-by-step tutorial is intended to teach the students to complete as the real analysis of options for a simplified project, and this tutorial is easily generalized to the case of students. In addition to the tactical possibilities, the case has also the strategic growth of the analytical CRM option. Students must therefore analyze both the tactical and strategic growth opportunities and an administrative recommendation on the financing of the project and also suggest an optimal implementation strategy to control the project risks.
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Mark Jeffery,
Chris Rzymski,
Sandeep Shah,
Robert J. Sweeney
Source: Kellogg School of Management
18 pages.
Release Date: 1 January 2006. Prod #: KEL266-PDF-ENG
The value of flexibility in Global Airlines: Real Options for EDW and CRM solution HBR case