CHAPTER 10 The Real Option Future. From mining to high-tech projects, the real option concept has infiltrated valuation problems in several Real option concepts have been developed to value worker flexibility created through cross-training, or composite risks in a manufacturing environment including demand uncertainty, production risks | The Real Option Future NOVEL CONCEPTS IN REAL OPTION APPLICATION From mining to high-tech projects the real option concept has infiltrated valuation problems in several Real option concepts have been developed to value worker flexibility created through cross-training or composite risks in a manufacturing environment including demand uncertainty production risks including uncertain input costs and operating risks such as the likelihood of system breakdowns. Technology uncertainty is not only a challenge for product development but is also a challenge for customers. In times of high technology uncertainty and frequent arrival of novel technologies customers too need to evaluate carefully their product needs as well as their options to preserve asset flexibility. For a supplier of customer services that entails weighing the option to acquire versus the option to lease to balance cost structure and flexibility. The investment in training and education of local sales representatives in an emerging market is an example of a real human resource option. While the operation itself may lose money it provides the organization with the opportunity to learn that will be very valuable if the market in the local economy grows. Along the same lines all investments into training and education of employees generate real option value by creating and strengthening organizational capabilities. This in turn alters the exercise price of future corporate real options or accelerates and improves future product development programs. The real option framework is also very helpful in evaluating network expansion These include for example airlines seeking to expand into new markets investments in a utility distribution infrastructure the expansion of data networks or product line extensions in traditional industries by offering additional products for the same customer segment. The option value derives from new network effects and network externalities 321 322 REAL .
