Application of Real Options Theory to Software-intensive System Acquisitions
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Authors
Olagbemiro, Albert
Shing, Man-Tak
Mun, Johnathan
Subjects
Real Options Theory
Real Options Theory, Software-intensive Systems, Requirements Uncertainty
Real Options Theory, Software-intensive Systems, Requirements Uncertainty
Advisors
Date of Issue
2009-04-01
Date
01-Apr-09
Publisher
Language
Abstract
In the Department of Defense (DoD), the typical outcome of a software acquisition program has been massive cost escalation, slipping planned delivery dates and making major cuts in the planned software functionality to guarantee program success. To counter this dilemma, the DoD put forth a new weapons acquisition policy in 2003 based on an evolutionary acquisition approach to foster increased efficiency while building flexibility in the acquisition process. However, the evolutionary acquisition approach often relies on the spiral development process, which assumes end-state requirements are known at the inception of the development process, a misrepresentation of reality in the acquisition of DoD software-intensive weapons systems. This article presents a framework to address requirements uncertainty as it relates to software acquisition. The framework is based on Real Options theory and aims at mitigating risks associated with requirement volatility based on the technology objectives''constraints as put forth by the customer at the acquisition decision-making level.
Type
Technical Report
Description
Proceedings Paper (for Acquisition Research Program)
Series/Report No
Department
Acquisition Management
NPS Faculty
Organization
Identifiers
NPS Report Number
NPS-AM-09-042
Sponsors
Naval Postgraduate School Acquisition Research Program
Funder
Format
Citation
Distribution Statement
Approved for public release; distribution is unlimited.
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.