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| Thought Paper |
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Investments in RFID: A Real Options approach |
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| Abstract |
Net Present Value (NPV) and Return on Investment (ROI) are commonly used to evaluate
investment in initiatives like new technology or any reengineering project. But sometimes measuring
the value of investment in technology becomes very difficult due to its wide scope of application
coupled with embedded options in its adoption. Projected cash flows seem meager in comparison to
the investment required, or the discount rate chosen to compensate for the risk is so high that it
renders the NPV unpalatable. RFID being a disruptive technology1 i.e. it cannot match the
performance that customers expect from product and services in the short term, Real Options
Analysis should be a better way to evaluate its adoption in the Supply Chain.
This paper reviews the financial and business logic behind investing in RFID.
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