The real options have a tendency to rise in the organization while being present with the assistance of the business investment while eliminating risks and uncertainties associated with decision-making (Copeland & Keenan, 1998a). Despite the beneficial influence of this economic practice, the options tend to be destroyed, and this matter occurs due to the underestimation of the advantageous impact of the situation and the application of the wrongful managerial principles. Nonetheless, one of the examples of this issue from my professional experience is the inability to consider other companies for the acquisition previously due to the limitation of the projections. In turn, another situation was related to the lack of information about the companies for the first acquisition while being a cause of the overpriced takeover. In this case, the underestimation of the alternatives led to the rise of the uncertainties related to the decision-making while questioning the future profitability of the organization.
The presented examples of the destroyed option can play a role of a lesson while enhancing a possibility for enhancement of the rationale for the prioritization of a particular alternative. In this case, the overall decision-making process should have been improved while considering the decision trees and the Black-Sholes model (Copeland & Keenan, 1998b). In turn, a particular emphasis should have been devoted to the analysis of the types of options and definition of certain strategies to create and manage alternatives to increase their efficiency (Janney & Dess, 2004). Based on the theoretical concepts mentioned above, it is apparent the overall drivers of the decision-making have to be modified by focusing on the organizational nature of flexibility and continuous assessment of the real options.
Despite the complexity of the workplace-based problem, the creation of the options for the optimization of the production could be regarded as one of the opportunities of the profits maximization. In this case, one of the alternatives to the expansion via acquisitions is the usage of contracts to enhance the position in the market with the assistance of the partnerships. Another potential sphere of development is the application of real options in the context of the mergers and acquisitions while defining potential possibilities for expansion, as the evaluation of all market opportunities assists in the minimization of the required investment.
Lastly, the utilization of options can contribute to the elevation of uncertainty avoidance and sufficient flow of decision-making while combining it with the profound analysis of alternatives and risks. It has to be said that the usage of real options can be used as a strategic mechanism to improve the financial performance of the organization (Leslie & Michaels, 1997). In turn, the application of real options eliminates the levels of uncertainty, as the fixed dates and prices ensure a certain amount of investment while defining managerial the flow of stages related to the decision making (Janney & Dess, 2004). Furthermore, the options play the role of the educators, as the situation tend to repeat due to the cyclical nature of economics (Janney & Dess, 2004). Based on the benefits stated above, the usage of real options has a positive influence on the overall functioning of the organization while determining the rationale for the implementation of a specific managerial approach and impacting the financial performance positively due to the increase in the amount of the available cash flow.
References
Copeland, T., & Keenan, P. (1998a). Making real options real. The McKinsey Quarterly, 3, 128-141.
Copeland, T., & Keenan, P. (1998b). How much is flexibility worth? The McKinsey Quarterly, 2, 38-49.
Janney, J., & Dess, G. (2004). Can real-options analysis improve decision-making? Promises and pitfalls. Academy of Management Executive, 18, 60-75.
Leslie, K., & Michaels, M. (1997). The real power of real options. The McKinsey Quarterly, 3, 4-22.