Strategy, Value and Risk: The Real Options Approach
Product Description
Updated and revised, this second edition applies advanced financial analytics within a strategic framework that recognizes an environment where sustainable competitive advantage is a progressively more difficult task. Real options offer the link to value and the strategic opportunities that lie in an increasingly dynamic landscape…. More >>
Strategy, Value and Risk: The Real Options Approach
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June 25th, 2010 at 1:44 pm
This book is heavily overpriced and not worth buying. For a non-technical introduction try Amram/Kulatilaka, for the technical introduction read in particular the books by Mun. In my perspective – as a frequent author on real options – this contribution is a complete waste of money (and lots of it I may add).
Rating: 1 / 5
June 25th, 2010 at 1:54 pm
Let’s face it, since the tech wreck and the collapse of Enron, the real options valuation (ROV) cult has taken a pasting. A number of commentators have expressed the view that ROV were just another way of investment bankers convincing investors to pay too much for assets.
To get a balanced insight into real options you should read this book. The truth is that the real option concept does provide a break through in thinking about risk, strategy and value….however, we need to recognise that it is also prone to abuse. As a colleague of mine one said “ROV is conceptually easy to understand – so when you are valuing a project it is easy for a creative mind to find valuable real options under every rock!”.
The trick in applying ROV is correctly framing and valuing a real option – and importantly caputuring those “sold” real options (i.e. real options which detract from value). Most books on ROV tend to squib on this crucial stage of framing and valuing of real options.
This book, in a very concise, manner takes you from the underlying economics of ROV, through to the framing and valuation of real options. The best insights in the book come from the three detailed case studies which handily compare DCF and ROV valuations using three case studies (if you want the classic energy trading ROV case study, see case study 2).
If you buy the book, be warned – it is pretty thin. However, this is more than compensated for by the very clear argument from base economics through to valuation which will ensure that your conceptual understanding of ROV is better than other books which get bogged down in the types of real option (e.g. option to delay, abandon…etc) and are three times the length.
My one suggestion to the publisher is that a useful addition would be to provide access to the underlying spreadsheets used in the valuation – it would probably take most readers several days to reconstruct each case study.
Rating: 5 / 5
June 25th, 2010 at 3:05 pm
This book provides a clear approach to grounding business strategy in the context of value and risk, going beyond conventional approaches focused on key performance indicators and the like. The text is balanced between practical case studies and discussion of the ideas and techniques underlying the “real options” approach.
The first half of the book brings together developments in strategy, real options, risk management and game theory to aid managers struggling to deal with standard financial analyses of their projects that may not be capturing the major sources of value they believe exist. The second half of the book describes the tools and mathematical framework, in a broad range of areas, necessary to practically implement the real options framework.
The text is easy to read and concise, and makes real options accessible to a wide audience in relatively few pages. While it would benefit from more detail in some places, this book should provide both a good introduction and starter manual for those curious about the link between value and strategy.
Rating: 5 / 5
June 25th, 2010 at 4:36 pm
Real options is a hot topic in financial management. Rogers has written a good book that strikes the right balance between big picture (this is the strategy portion of the book) appropriate for senior management, and details on the analytics appropriate for financial analysts and modelers. This balance is key because a common challenge for real options is making it less of a black box to senior decision makers. As the title indicates, Rogers places real options in a broad context of strategy, valuation and risk management — some texts on real options come across purely as financial tools and miss this broader context. There are several realistic case studies included (IT project, electricity generation and pharmaceutical R&D). Senior management should read the first half, and financial techies can dig into the details in the second half. I would like to have seen a longer discussion on decision analysis; however, it covers a lot of territory in a compact size.
Rating: 5 / 5
June 25th, 2010 at 6:39 pm
Rogers has written an outstanding book on strategic option analysis and decision making. Strategy, Value and Risk – The Real Options Approach provides an insightful overview of historical approaches to valuing strategic options such as, DCF/NPV and SVA, and compares them to the Real Options Valuation (ROV) approach. The book is well organized, concise and easy to read and serves as a practical guide for understanding when and how to apply these approaches.
I regard Rogers’ book as an informative reference for anyone involved in evaluating strategic initiatives and find that it is a great complement to the corporate strategy standard, Valuation by Copeland, Koller & Murrin, which briefly discusses the use of option pricing and decision tree analysis to value corporate flexibility.
I appreciate the brevity of Rogers’ book along with its focus on key concepts and practical examples, but admit that I would be interested in reading more of what the author has to say about historical and emerging approaches to corporate strategy and decision making. I also agree with another reviewer that providing access to the spreadsheets used in the case studies would be very helpful and further increase the book’s appeal as a practical reference applicable to a wide audience.
Rating: 5 / 5