NASA technology assessment using real options valuation

Abstract

Abstract We examine the use of real options valuation in the context of prioritizing advanced technologies for NASA funding. Further, we offer a set of computational procedures that quantifies the option value of each technology. Other researchers have applied a real options framework to private sector investments. In the case of NASA investments in advanced technologies, the underlying products, which must be used to justify the investments, are space‐related scientific results and discoveries from completed missions to be shared worldwide. As in the private sector, uncertainty plays a significant role in the motivation to use real options in NASA. Uncertainty in NASA technology investments can be classified as development risk and programmatic risk (whether missions using the technology will actually fly). The latter might be called the technology “market risk.” We carried out the approach on a number of planetary exploration technologies. We illustrate the detailed calculations using one of them—lightweight propellant tank technology. © 2003 Wiley Periodicals, Inc. Syst Eng 7: 1–12, 2004