Managing risks in IT projects: an options perspective

Organizations are making large investments in information technology (IT) projects. However, many are risky and are often considered runaway, because they do not meet original expectations of cost, time, or benefits. Effective management of risks in IT projects is therefore extremely important. This paper emphasizes the need to differentiate between risks that can be resolved by action and risks that require hedging. It presents a framework for understanding and hedging risks in IT projects based on the finance literature on real options. This framework can be used to understand and justify project management decisions. The insight provided by this framework is consistent with practical managerial decisions in IT project management.