Because standard investment evaluation methods (net present value) do not take into account managerial flexibility
- Irreversible decision making?
(Almost?) each type of decision has an irreversible cost: do you know one?
(Almost?) each type of uncertainty can be addressed by a real options analysis: technical uncertainty, market uncertainty, policy uncertainty, … which type of uncertainty do you face?
(Almost?) all types of flexibility can be integrated in the model. The option to wait, option to abandon, option to expand, growth option, option to change output, … how flexible are you?