In order to understand that, let me state the simplest decision tree: Being within this “room for manoeuvre” means that the consequences of the further actions do not affect prior outcomes that arose before the last were implemented. This “flexibility” can be seen as “room for manoeuvre”. Then adjusting further actions – basing the decision on the outcome of the analysis. The possibility to learn how the market reacts from the implementation of a small pivot investment. The two following diagrams explain “Managerial Flexibility”. That is the so-called “Managerial Flexibility”. Their parameters rely on a stochastic process of the underlying price – where only the market has the capability to affect it.Ĭonversely “Real Options” involve the founders’ and investors’ behaviour: you have the capability to understand and learn what is happening and the ability to shape your decisions. However “Real Options” differ from “Financial Options”. Even the Earn-Out and Claw-Back clauses have been modelled as financial options. The right to undertake a real investment has been shaped as a call option while the right to sell something, as for example the opportunity to make a spinoff of a branch, has been summarised in a put option. In modern financial literature, those “options” have been assimilated to financial options. We can say that you hold “options” in your hands: options to make, or not make, certain investments.
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