by the probability of exercise, The value of the DM Method option can be understood as This simplified formulation has strong parallels to an expected value calculation. Businesses that collect historical data may be able to leverage the similarity of assumptions across related projects facilitating the calculation of option values. One resulting simplification is the Uncertainty Ratio, , which can often be modeled as a constant for similar projects. UR is the degree of certainty by which the projected future cash flows can be estimated. UR is invariant of time with values typically between 0.35 and 1.0 for many multi-year business projects. Applying this observation as a constant, K, to the above formulas results in a simpler formulation: is normally distributed and the values can be accessed in a table of standard normal variables. The resulting real option value can be derived simply on a hand-held calculator once K is determined: Assuming the UR is held constant, then the relative value of the option can simply be determined by the ratio of , which is proportional to the probability of the project being in the money and launched (exercised). Then (Fig. 6) A real option valuation is typically applied when the probability of exercise is approximately less than 50% Businesses need apply their own data across similar projects to establish relevant parameter values. Triangular form (Range Option) Given the difficulty in estimating the lognormal distribution mean and standard deviation of future returns, other distributions instead are more often applied for real options used in business decision making. The sampled distributions may take any form, although the triangular distribution is often used, as is typical for low data situations, followed by a uniform distribution (continuous) or a beta distribution. This approach is useful for early-stage estimates of project option value when there has not been sufficient time or resources to gather the necessary quantitative information required for a complete cash flow simulation, or in a portfolio of projects when simulation of all the projects is too computationally demanding. Regardless of the distribution chosen, the procedure remains the same for a real option valuation. For a triangular distribution, sometimes referred to as three-point estimation, the mode value corresponds to the “most-likely” scenario, and the other two other scenarios, “pessimistic” and “optimistic”, represent plausible deviations from the most-likely scenario (often modeled as approximating a two-sided 1-out-of-10 likelihood or 90% confidence). This range of