In terms of risk/ oppertunity managment how could adopting a Real Options approach benefit endeavours such as Virgin Galactic

The real options method has been defined as one that applies financial options theory to quantify the value of management flexibility in a world of uncertainty (Real Options , 2004 . The corporation Virgin 's Galactic has the potential of benefiting from the real options method of evaluating the benefits of business ventures , in that the in-depth market analysis that is usually performs might locate areas in which opportunities for even further expansion (or even mergers or other strategies ) might lie . It has already been seen that the company is the parent of a

large variety of businesses (IBSCDC , 2006 Woodruff , 2007 Because of the relationship that Virgin has to other many different types of companies , the real options method of evaluation would be a very suitable method for identifying the benefits of investing in a new area

This method allows for evaluating whether Virgin 's investment in a certain area might allow for partnership with and future investments in other companies that are registered under the Virgin brand . It is known for example , that the Virgin Group operates Virgin airline companies in multiple countries . A venture involving the expansion of Virgin into the hotel industry might be considered not just with regard to such variables as cash flow and discount rates . Rather , the option of hotel partnership with airlines in offering joint services to customers might make the investment more attractive to the Virgin Group , as opposed to a lone investor with no connections in the airline industry

Virgin Galactic also gains the opportunity from the real options method of assessing whether dropping other investments might aid the overall company if the current investment being considered should run into losses or otherwise face financial problem . The Virgin Group does have many investments the abandonment of which might grant it the additional cash flow necessary for the success of a new investment venture However , it is also necessary to consider the fact that Virgin Galactic operates largely as a franchise . Therefore , all the capital available to (or being used by ) the Group does not necessarily come from one investor . This would mean that the dropping of an investment by the Group as a whole might not necessarily be of great benefit to the particular investor that might be running into losses after the initial venture

References

IBS Case Development Centre (2006 . The Virgin Group in 2005 . ICFAI Business School . Retrieved on January 21 , 2007 from www .ibscdc .org

Real Options (2004 . Real options in theory and practice ' Real Options . Equis . Retrieved on January 21 , 2007 from http /www .real-options .org

Woodruff , D (2007 . Virgin Group Ltd . Hoovers : A D B Company . Retrieved on January 21 , 2007 from http /www .hoovers .com /globaluk /sample /co /factsheet .xhtml ?ID 41676

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Real options and Virgin...