A real option theoretic fuzzy evaluation model for enterprise resource planning investment

Chew Jian You, Ka Man Lee, S. L. Chen, Roger J. Jiao

Research output: Journal article publicationJournal articleAcademic researchpeer-review

30 Citations (Scopus)

Abstract

The high failure rate of ERP implementation is due to a common pitfall that ERP projects are often enacted as merely investment into installation of IT infrastructure, rather than systematic planning of operation changes, business process re-engineering and a paradigm shift for the operation and management. To manage ERP investment in a changing environment for high payoff, this paper adopts a real option theoretic method. Fuzzy payoff valuation is introduced to deal with uncertainties in order to minimize the risk of failure. The proposed ERP evaluation model is geared towards small and medium enterprises. A case study is presented to validate the proposed fuzzy real options. The results indicate the potential of modeling ERP investment as "Expand", "Contain" and "Abandon" options in different scenarios. The fuzzy real option model bestows a novel ex-ante cost analysis for justifying ERP investment in the implementation cycle.
Original languageEnglish
Pages (from-to)47-61
Number of pages15
JournalJournal of Engineering and Technology Management - JET-M
Volume29
Issue number1
DOIs
Publication statusPublished - 1 Jan 2012
Externally publishedYes

Keywords

  • Enterprise resource planning
  • Fuzzy Logic
  • Fuzzy payoff valuation
  • Option valuation models
  • Real Option Theory

ASJC Scopus subject areas

  • Industrial relations
  • Engineering(all)
  • Strategy and Management
  • Management Science and Operations Research
  • Information Systems and Management

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