Question

The underlying premise of the real options approach is that __________.

a) Project success depends on stakeholder satisfaction
b) Project outcomes are uncertain and can change over time
c) Financial metrics are the sole determinant of project value
d) Projects should be evaluated based on historical data

Answer 1

The real options approach is based on the understanding that project outcomes are uncertain and may evolve, offering managers the flexibility to adapt and make decisions that can increase the project's value.

Step-by-step explanation:

The underlying premise of the real options approach is that project outcomes are uncertain and can change over time. This financial concept recognizes that managerial flexibility to adapt and make decisions under uncertainty can add value to a project. Just as options in the financial markets provide the holder the right to undertake certain business decisions, the real options approach provides the methods to value such flexibility in a project's planning and execution stages.