Are Swedish Firms Ready For Real Options?

Abstract

This study deals with Real Option Analysis. This is a powerful method of capital budgeting which also encompasses strategic planning. The method is praised and hailed by the scientific community but however is not well used in practice. There have been many potential reasons aired as to why Real Option Analysis has not gained more wide spread acceptance in practice. The authors have chosen to, through a qualitative study; look into the potential mismatch between Swedish firms‟ organizational systems and structures and what may be required to successfully implement Real Option Analysis. A broad literature study has been conducted to acquaint the reader with potential problems encountered when using Real Options Analysis. Specifically, what Real Option Analysis demands from a firm in terms of organizational systems, structures as well as other soft values in order to be implemented successfully is comprehensively examined. This is then compared and contrasted to how the five interviewed Swedish firms were described. The study has lead the authors to the conclusion that for Real Option Analysis to function fully and correctly, many firms need to amend their organizational structures to make sure the options present in the company are exercised in a correct and timely fashion. Equally, the authors have identified a factor regarding an options mindset that entails that for a firm to even see the need for applying ROA, they first have to start viewing their business as containing options and flexibility.