SC03 - EVALUATING REAL OPTIONS

A real option can be defined as the right, but not an obligation, to undertake a business decision. It is often characterised by step-wise decisions over time, flexibility and the modelling of value (and cost) of information. An option’s potential value is usually connected to the magnitude of the underlying uncertainty and it is therefor key to identify the underlying value drivers. As new information is revealed and uncertainty is updated, management may have flexibility to alter its initial strategy for a project in order to capitalise on favourable future opportunities or to act in order to mitigate losses. Real options are used to explicitly incorporate management flexibility into the analysis of investment projects. Real options allow the company to benefit from uncertainty in the underlying value drivers because management adapts and is able to create value by reacting to both negative and positive outcomes. This flexibility can represent a substantial part of the value of a project. 

This 1-day course focuses on how real options can be fully integrated with other key project decisions and uncertainties and included in the overall project timeline. Participants will, among other things, learn how to:

  • Use a structured approach to identify real options in different types of projects
  • Agree on which uncertainties and project decisions are the most critical in relation to the real options
  • Incorporate the real options into the initial problem structure and estimate the value of the options
  • Weigh the cost of incorporating flexibility into the project against the probability and value potential of capturing upside
  • Present and communicate the possible outcomes of real options, decision alternatives, main value drivers and risks
Upon request
1-day course
Lectures, case studies, group work

Key concepts

Real option identification, underlying uncertainties, new information, imperfect information, Bayes’ theorem, management flexibility, economic value, cost versus upside, fall-back cases, competing alternatives and options.

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Learn how to

Use a structured approach to identify real options in different types of projects. Incorporate the real options into the initial problem structure and estimate the value of the options. Weigh the cost of incorporating flexibility into the project against the probability and value potential of capturing upside.

Attitudes

Acknowledge the potential value, but also the risks of real options. Take responsibility to identify and compare real options, alternative decisions and fall-back cases. Take initiative to work closely with other contributing disciplines throughout projects to capitalise on the options.

Target group

This course is specifically designed for professionals involved in projects that are in the early phases where real options may provide an important contribution to overall value creation: project managers, project members, technical personnel. The course can be customised to suit a certain business area specifically.

Knowledge

Understand the potential value of real options and the importance of early identification of the options. Recognise your contribution to successful incorporation of real options into the decision basis. Participate pro-actively to identification and evaluation of real options as well as competing alternatives.

Background

University level degree.  Technical or economic backgrounds are both suitable. Prior knowledge of the economic theory behind real options is not required. Experience from project work in multidisciplinary project teams is an advantage. Basic knowledge of decision analysis methodology is recommended.

PAYMENT OPTIONS

Student
NOK 1.850

1-day course

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Business
NOK 5.200

5+ participants

1-day course

30% discount

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Single person
NOK 7.500

1-4 participants

1-day course

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ENROLMENT

This course is arranged upon request. Get in touch for more details.

INSTRUCTORS

More than 35 years of combined experience in the field of decision analysis.

 

OUR OTHER COURSES

General courses

S01 – Combine experience, intuition and analysis

S01 – Combine experience, intuition and analysis

6. October 2015

2-day course: Learn the fundamentals of decision analysis. How to structure different types of decision problems. Identify key aspects, main value drivers and relevant risks. Optimise sequences of decisions and possible outcomes. Evaluate costs and benefits of data gathering programs. Identify real options, non-linearities and strategic values. Present and communicate decision alternatives. … Read More

SC01 – Framing and problem structuring

SC01 – Framing and problem structuring

6. October 2015

1-day course: Learn different framing and problem structuring techniques to increase the likelihood of capturing what is important early on, align team members and maximise value creation. Learn how to identify key decisions and relevant risks and uncertainties as early as possible. Present and communicate decision alternatives, main value drivers, risks and recommendations. … Read More

SC02 – Decision modelling for insight

SC02 – Decision modelling for insight

6. October 2015

1-day course: Learn how to build decision models to increase the likelihood of capturing what is important early on. Construct models to reflect the problem structure for various decision problems. Course participants are guided through the process of building a simple decision model using Excel by Microsoft and @Risk by Palisade*. The model is used in team exercises to illustrate the value of proper modelling, insightful result plots and best practice workflows. … Read More

SC03 – Evaluating real options

SC03 – Evaluating real options

6. October 2015

1-day course: Learn how to use a structured approach to identify real options in different types of projects. Incorporate the real options into the initial problem structure and estimate the value of the options. Weigh the cost of incorporating flexibility into the project against the probability and value potential of capturing upside. … Read More

SC04 – Decision analysis for managers

SC04 – Decision analysis for managers

7. October 2015

1-day course: Learn how to interpret and gain insight from decision modelling results, establish best-practice workflows, use different types of economic indicators, distinguish between relevant and irrelevant project risks and optimise projects and portfolios under capital constraints. Examples are used to illustrate how high quality decisions derive from the right combination of thought, collaboration, computation and communication. … Read More

SC05 – Evaluating new technologies

SC05 – Evaluating new technologies

5. October 2015

1-day course: Learn how to utilise technology readiness levels, technology novelty categories and decision/governance processes to evaluate and compare relevant technologies. Calculate key technology risks and incorporate them into the problem structure. Communicate main value drivers for the technology options as well as for the project as a whole and compare competing alternatives in a consistent way. Learn to differentiate between enabler and enhancer technologies and value potential on project and portfolio level. … Read More

Oil & energy courses

F01 – Multi-disciplinary field trip

F01 – Multi-disciplinary field trip

9. January 2016

5-day field trip: Learn how to extract critical geological information and understand its implication for volume estimation, producability, drainage strategy, drilling strategy, development concept and value. Identify key value drivers and contribute to constructive multi-disciplinary discussions at the intersection between geo-modelling and project modelling using decision models and decision analysis methodology. … Read More

E01 – Exploration and appraisal projects

E01 – Exploration and appraisal projects

10. October 2015

1-day course: Learn how to estimate the economic value of a prospect based on an optimised sequence of decisions and possible outcomes. Adapt a fit for purpose approach given the incomplete data availability and the fact that many of the assumptions made are often conceptual and based on analogues. Estimate geological and commercial risks and evaluate the costs and benefits of appraisal and other data gathering programs. … Read More

E02 – Early phase projects

E02 – Early phase projects

10. October 2015

1-day course: Learn how to bring a discovery from appraisal to concept selection and development. Learn how all elements from reservoir to market can be included in the analysis and how different appraisal programs, development alternatives and drainage strategies can be compared. Present and communicate decision alternatives, main value drivers, risks and recommendations. … Read More