Placing the power of real options analysis into the hands of natural resource managers – Taking the next step

• The complexity of real options analysis has limited its application.
• Intuitively accessible approaches to valuing real options are emerging.
• Climate change makes the future conservation value of land highly uncertain.
• Covenants can be used to manage reserves with uncertain future conservation value.
• Real options analysis can be used to support practitioners to design conservation covenants.

This paper explores heuristic methods with potential to place the analytical power of real options analysis into the hands of natural resource managers. The complexity of real options analysis has led to patchy or ephemeral adoption even by corporate managers familiar with the financial-market origins of valuation methods. Intuitively accessible methods for estimating the value of real options have begun to evolve, but their evaluation has mostly been limited to researcher-driven applications. In this paper we work closely with Bush Heritage Australia to evaluate the potential of real options analysis to support the intuitive judgement of conservation estate managers in covenanting land with uncertain future conservation value due to climate change. The results show that modified decision trees have potential to estimate the option value of covenanting individual properties while time and ongoing research resolves their future conservation value. Complementing this, Luehrman's option space has potential to assist managers with limited budgets to increase the portfolio value of multiple properties with different conservation attributes.