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<p>As it stands today, software is the major expense in software intensive systems.  Therefore, software is, and should be treated as a capital investment and an approach  emphasizing a strategic investment methodology in its acquisition is necessary. The  strategic flexibility in software engineering decisions can be valued as a portfolio of  options or real assets, much akin to options on financial securities which have real  economic value under uncertainty. This approach would emphasize the linking of  program management decisions to current and future unknown situations within the  stipulated parameters of cost, schedule and functionality thus giving the managers a set of  choices or options.  This dissertation describes a strategic decision-making process that is based on  the general concepts of initiating the software acquisition process with a situation  assessments phase, generating the appropriate strategic actions and deriving the benefits  or value created either explicitly or in the form of Real Options. We present a framework  based on Real Options theory to allow decision makers to better balance customer  requirements as dictated by operational needs within financial viability and schedule  constraints through the identification, valuation and optimization of strategic decision  pathways created in the form of Real Options.  We apply the framework to the software component (Future Combat Systems  Network) of U.S. Army Future Combat System (FCS). Our study found that when  properly formulated, a Real Options approach could be used as an effective risk  management tool to guide decision-making at the software acquisition level further  complementing the risk-driven spiral development approach currently being utilized in  the U.S. Department of Defense (DoD) evolutionary acquisition model.
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<br>Subjects: Software engineering.; Real Options; Strategic Investments; Software Acquisitions; Risk Management; Software Engineering</div>
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Olagbemiro, Albert O.</div>
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