Strategy, Value And Risk-The Real Options Approach

Rating:
Summary: The truth about real options.......
Review: 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:
Summary: An insightful overview and a practical reference
Review: 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:
Summary: Save your money....
Review: 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).