Justification of investments in information technologies is an
important research topic in the information systems area. Several
approaches have been proposed. One of these highlights the deficiencies
of traditional economic justification based on net present value,
and proposes the use of techniques based on financial option pricing
theory. This paper examines the relationship between project risk
and option values of investments in new information technologies
and illustrates how this relationship is significantly different
from well-known results in the case of financial option pricing.
Conditions for determining the desirability of risky projects
are derived.
Key words and phrases: information-system economics , information-technology investments , real options