This work presents an application of the Real Option Theory on product development decision-making and investment analysis for an automotive component manufacturer by adopting the action research methodology. Considering that the development of products demands investments in multiple phases, this can be regarded as a sequential compound real option, enabling a more realistic management development, once it encourages gradual decision making, evaluates managerial flexibilities, and promotes a clear detailed vision of the investment and its uncertainties. Throughout this study, the binomial method is applied to the development analysis of a set of piston rings, in which investment decisions are incorporated for each stage, thus providing a new perspective to the project value and its marketing mix decisions. We concluded that the incorporation of the Real Option Theory to develop a group of products of the studied company raised the real value of investment, as it had been proposed by this research, representing a new dynamics to decision-making and negotiation with the client.
Real options; Investment analysis; Product development
