Assessment of information technology investment risk and value based on real options

Past information systems research on risk evaluation has rarely fully explored the relationship between IT investment value and risk factors. This paper presents a comprehensive but simple methodology for valuating IT investment based on real options and fuzzy set theory. The valuation model we present is based on the assumption that the uncertainty of the expected payoffs from IT investments is not merely stochastic but also vague in nature. Fuzzy risk analysis is able to well formulate the uncertainty of the expected payoffs from an investment, moreover simplifies the real option model in certain degree. The author provides a numerical example of supplier relationship management information system in a nuclear power station to illustrate the assessment model.