Real Options
Real Options is a sophisticated decision-making methodology rooted in financial theory, specifically tailored for projects that follow an adaptive delivery model. The approach views decisions through the lens of stock options, considering when to exercise a particular choice rather than the substance of the choice itself. This framework is particularly instrumental in business analysis activities, offering a structured way to manage uncertainty and information asymmetry.
Fundamental Principles
Real Options operates on two guiding tenets:
Reduce Immediate Decisions: The idea is to minimize the number of choices that need immediate attention. By doing so, the team is not cornered into making hasty decisions that may later prove to be suboptimal.
Delay Decision Making: This principle advocates for pushing the decision-making to the latest possible time. Delaying decisions helps in accumulating more information and reduces the variables of uncertainty.
Benefits of Delayed Decision Making
Increased Knowledge Base: Waiting allows the team to gather more information, which leads to more informed decision-making.
Reduced Uncertainties: With more information, the ambiguities and uncertainties surrounding a decision reduce significantly.
Preservation of Options: Delaying a decision allows the team to keep its options open without committing to a particular path, especially when data is sparse.
Expiration of Options
However, like financial options, real options also come with an expiration date. Waiting too long to make a decision might result in missed opportunities or diminishing returns. Therefore, the timing of the decision becomes a critical factor.
Application in Adaptive Projects
In the realm of adaptive projects, Real Options can be applied when deciding which user stories to prioritize in an iteration or when to kickstart business analysis activities for elaborating a story. The framework guides the "when" of these decisions, enabling teams to manage their work more efficiently.
Consideration of Business Objectives and Risks
The Real Options technique is not just about delaying decisions; it’s also about informed decision-making that aligns with business objectives, cost considerations, and risk assessments. As information gets clearer, non-feasible options can be efficiently eliminated, thereby focusing only on those choices that align with business goals and risk tolerance.
Real Options provides a structured decision-making framework that allows business analysts and product teams to navigate through uncertainties with greater confidence. Its core principles of delaying decisions and reducing immediate choices equip teams with the ability to make well-informed decisions, aligned with business objectives and risk profiles.