Ross

DECISION ANALYSIS FOR TECHNOLOGY MANAGEMENT: A REAL OPTION STRATEGIC SCORECARD APPROACH CESAR MUNOZ, PhD University of Central Florida Orlando, Florida. United States cesarnet@live.com ANDREA ESCOVAR Eafit University Medellin, Colombia andreaescovar@gmail.com

Abstract In management of technology, the decision analysis process for selecting strategic project investments has significantimportance. Trillions of dollars are spent worldwide every year on technology. However, most managers are still using traditional capital budget techniques such as the net present value (NPV) or conventional ad-hoc scoring models for making decisions. The research literature points out two major limitations of these methods. First, NPV uses deterministic estimations of costs and benefits withoutconsidering the full impact of uncertainty and risk. Second, the conventional ad-hoc scoring models are based on subjective judgments. In this paper, we introduce a new decision analysis framework using a Real Option Strategic Scorecard (ROSS) approach to contribute with a better alternative for the selection of project investments. The ROSS framework builds upon and extends the previous body of researchon real options and balanced scorecards. The ROSS approach uses as criteria two new metrics (RealOptionScore and StrategicScore) to estimate the financial and strategic fit of technology projects. In contrast with traditional models, the ROSS approach considered the effects of uncertainty and risk, and systematically measure both the business value and strategic implications of technologydecisions. For validation, the ROSS decision framework was applied to a case study for a Latin-American Telecommunications firm selecting a platform for development of rich client mobile services for its corporate customers. The firm was choosing between proprietary i-phone technologies versus open source g-phone infrastructures. The paper presents the results of the study and the benefits of using theROSS approach versus the traditional NPV - scoring models. Scores and surveys results are presented. The major research contribution of the ROSS approach is to provide a unified decision analysis framework to enable managers to better compare and rank strategic decisions and investments in technology. Keywords: Technology Management, Program and Project Management, Decision Analysis.

IntroductionOne of the most important responsibilities of technology managers is to make good decisions regarding technology investments. This decision making process is complex because is affected by quantitative factors such as tangible costs and benefits, but also by intangibles elements that are more difficult to measure such as the alignment of the decision with the overall business strategy.Traditionally, managers have been using classical capital budgets methods such as the net present value (NPV), combined with conventional ad-hoc scoring models to select technology investments. However, these methods have limitations. Under the conventional scoring models, technology alternatives are rated using ad-hoc criteria and subjective judgments generating in many cases, arbitrary results. NPVassumes a static and deterministic business environment where the decisions about the project are taken “now” or “never” without considering the “option” to delay, pilot, scale or cancel the project once it has started depending on market or technological conditions. The aim of this research is to propose a decision framework using a Real Option Strategic Scorecard (ROSS) approach as a betteralternative for the analysis and selection of technology investments. In contrast with traditional methodologies and previous research work, the ROSS framework uses a unified and multidimensional approach for systematically measuring both the business value and strategic implications of technology decisions. The major research contribution of the ROSS approach is to integrate into a unified decision...