Enhancement of investment decision making using real options with application to advanced process control project

Abstract

Feasibility study is one of the most important parts of decision making for project investment. Current industrial approach to estimate benefit of advanced process control (APC) is based on the conventional estimation techniques, namely, statistical analysis, net present value, and payback period. These conventional approaches can answer the investment either 'Go' or 'No Go'. The gap analysis reveals that economic uncertainties and inflexibility of decision criteria are the issues required improvement on the decision making process. In this paper, we apply a real options approach to develop option to defer analysis as part of the proposed feasibility study of APC project. We demonstrate improvement of the proposed method with a case study on ethylene plant in Thailand. The result shows that option to defer can answer 'when to defer' and 'when to invest'. Hence, this approach enhances the investment decision making under economic uncertainties and provides flexible decision criteria.