Rental software valuation in IT investment decisions

    Authors

    C. Singh; R. Shelor; J. Jiang;G. Klein

    Comments

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    Abbreviated Journal Title

    Decis. Support Syst.

    Keywords

    options; capital budgeting; information technology investment; application service providers; Stochastic processes; risk analysis; CORPORATE LIABILITIES; OPTIONS ANALYSIS; VARIANCE; Computer Science, Artificial Intelligence; Computer Science, Information; Systems; Operations Research & Management Science

    Abstract

    The growth of application service providers (ASPs) is very rapid, leading to a number of options to organizations interested in developing new information technology services. The advantages of an ASP include spreading out payments over a contract period and flexibility in terms of responding to changes in technology. Likewise, newer risks are associated with ASPs, including pricing variability. Some of the more common capital budgeting models may not be appropriate in this volatile marketplace. However, option models allow for many of the quirks to be considered. Modification of the option pricing model and an analytical solution method incorporated into a spreadsheet for decision support are described and illustrated. The analytical tool allows for better decisions compared to traditional value analysis methods which do not fully account for the entry and exit options of the market. (C) 2003 Elsevier B.V. All rights reserved.

    Journal Title

    Decision Support Systems

    Volume

    38

    Issue/Number

    1

    Publication Date

    1-1-2004

    Document Type

    Article

    Language

    English

    First Page

    115

    Last Page

    130

    WOS Identifier

    WOS:000223971400009

    ISSN

    0167-9236

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