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Title: Application of Real Options Theory to Software-intensive System Acquisitions
Authors: Albert Olagbemiro
Man-Tak Shing
Johnathan Mun
Keywords: Real Options Theory
Software-Intensive Systems
Requirements Uncertainty
Issue Date: 1-Apr-2009
Publisher: Acquisition Research Program
Citation: Published--Unlimited Distribution
Series/Report no.: Real Options Theory
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.
Description: Acquisition Management / NPS Faculty Research
Appears in Collections:Annual Acquisition Research Symposium Proceedings & Presentations

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