Forthcoming as the lead article in a special issue of Information Technology and Management, 2006.

Past information systems research on real options has focused mainly on evaluating information technology (IT) investments that embed a single, a-priori known option. However, since real options are not inherent in any IT investment, they usually must be planned and intentionally embedded in a target IT investment in order to control various investment-specific risks, just like financial risk management uses carefully chosen options to actively manage investment risks. Moreover, when an IT investment involves multiple risks, there could be numerous ways to reconfigure the investment using different series of cascading (compound) options. In this light, we present an approach for managing IT investment risk that helps to rationally choose which options to deliberately embed in an investment so as to optimally control the balance between risk and reward. We also illustrate how the approach is applied to an IT investment entailing the establishment of an Internet sales channel.

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In this paper, the development of knowledge management (KM) was surveyed, using a literature review and classification of articles from 1995 to 2004. With a keyword index and article abstract, we explored how KM performance evaluation has developed during this period. Based on a scope of 108 articles from 80 academic KM journals (retrieved from six online databases), we surveyed and classified methods of KM measurement, using the following eight categories: qualitative analysis, quantitative analysis, financial indicator analysis, non-financial indicator analysis, internal performance analysis, external performance analysis, project-orientated analysis and organizationorientated analysis, together with their measurement matrices for different research and problem domains. Future development directions for KM performance evaluation are

Recognizing the inadequacy of traditional cost/benefit analysis for evaluating information technology (IT) infrastructure projects, research in technology investment suggests the efficacy of taking a real options perspective for evaluating such projects[11, 24]. Option pricing methods (OPMs) help management properly evaluate the opportunities created by IT investments, and are suitable for assessing the value of different types of IT projects including infrastructure projects, software prototyping, decision support systems, and technology standard-based projects. In this research, we view the undertaking of an investment in an IT infrastructure project as an action that allows the firm to obtain a real option on contingent future opportunities through additional follow-on projects. Specifically, we examine the extent to which useful managerial insights can be derived from using a real options perspective for assessing the value of investments in object-oriented (OO) middleware technology. We argue that much of the value of such an investment comes from the potential of follow-on projects that are made possible by utilizing this technology. Such benefits can only be assessed by characterizing IT projects as stages in an overall development strategy and explicitly recognizing the potential value of follow-on projects. OPMs provide a useful and appropriate mechanism for such an assessment.

Real operating (flexibility) options embedded in a technology investment are valuable because they allow management to take rational, value-adding actions that could favorably affect operational traits of the investment (timing, scale, scope, etc.). These options, however, are not inherent in technology investments. Rather, they usually must be carefully planned and designed to fit each investment differently. Building on concepts from the area of financial risk management, this paper presents a methodology for planning the creation of specific operating options designed to maximize the value of a technology investment in light of the risks underlying that investment. The paper also illustrates the use of the methodology in the context of a Web-based information technology investment.

To have a real option means to have the possibility for a certain period to either choose for or against something, without binding oneself up front. The real option rule is that one should invest today only if the net present value is high enough to compensate for giving up the value of the option to wait. Because the option to invest loses its value when the investment is irreversibly made, this loss is an opportunity cost of investing. The main question that a management group must answer for a deferrable investment opportunity is: How long do we postpone the investment, if we can postpone it, up to T time periods? In this paper we consider the real option rule in a fuzzy setting, where the present values of expected cash flows and expected costs are estimated by trapezoidal fuzzy numbers. We shall determine the optimal exercise time by the help of possibilistic mean value and variance of fuzzy numbers. Keywords: Option pricing; Investment decision making under uncertainty; Investment-timing problems; Possibilistic mean value and variance; Possibility distributions; # appeared in: Proceedings of the EUROFUSE 2001 Workshop on Preference Modelling and Applications, April 25-28, 2001, Granada, Spain, 2001 235-239.

We survey the literature on the adoption and diffusion of information and communication technologies (ICT) in businesses. We identify two key dimensions that have been the focus of most of the literature. First, research can be categorized as focusing on ICT adoption costs or ICT adoption benefits. Second, research can be categorized as focusing on the internal organization of the firm or on the external environment. Major themes are highlighted as are opportunities for future research. * Respectively at Carnegie Mellon University and the University of Toronto. We thank Shane Greenstein for comments and advice, and Kristina Steffenson for outstanding research assistance. All opinions and errors are ours alone. 1

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In this paper we shall represent strategic planning problems by dynamic decison trees, in which the nodes are projects that can be deferred or postponed for a certain period of time. Using the theory of real options we shall identify the optimal path of the tree, i.e. the path with the biggest real option value in the end of the planning period.