Embedding real options in scenario planning: A new methodological approach

- Extant literature offers little indication of how to combine scenarios with real options.
- We propose a new methodology for integrating real options analysis into scenario planning.
- We aim to overcome the limitations and enhance the benefits of both techniques.
- We investigate how to advance the learning skills of firms in uncertain environments.

The main goal of this paper is to explore whether and how we might integrate real options analysis into scenario planning in order to overcome the limitations and enhance the benefits of both techniques. So far scholars have emphasized that the main advantages of scenarios consist in developing the learning and adaptive skills of organizations. We thus investigate how to develop further these learning skills. Our paper contributes to the strategic management literature in three ways. First, it illustrates a new and simplified methodological approach to real option valuation. Second, it embeds this methodological approach into the 2 × 2 scenario matrix technique. Third, it deepens our understanding of the advantages that the combined use of scenarios and real options might bring to each technique.