SYNOPSIS:

This paper views the managerial flexibilities built into an information systems investment as call and put options and derives insights about the intangible costs and benefits in the systems decision. The basic premise is that managerial actions can substantially enhance the value of a systems investment by maximizing its payoffs and minimizing its losses. These actions are analogous to management's exercising the various options built into the investment. It is cructal, therefore, that the investment decision deliberately creates as many of these options as allowed by the cost constraints. Four types of options are identified and discussed: defer, expand. downstze, and redeploy. The implications of these options for the systems decision are derived via option pricing theory, with special attention given to the role of intangible costs and benefits that seldom enter into traditional economic analysis.