Evaluating capital investment opportunities: capturing the value of flexibility.
The risks inherent in today's healthcare environment make it difficult to predict financial returns from large capital investments or strategic initiatives. Discounted cash-flow financial models are an inadequate means of valuing capital investment opportunities. Real-option analysis includes in the value of a capital investment the ability of management to alter a strategic course or react to marketplace changes. The value of managerial flexibility is higher in an investment opportunity with considerable risk.
Smyth
J Patrick
JP
Kurt Salmon Associates, San Bruno, California, USA. jps@kurtsalmon.com
Swinand
Paul
P
D002201:Capital Expenditures / Q000592:standards*; D003659:Decision Making, Organizational; D005377:Financial Management, Hospital / Q000379:methods*; D006801:Humans; D007449:Investments / Q000191:economics*; D014481:United States