Real Options focuses decision makers attention on the items that need to be decided now, at the last responsible moment. By focusing on the appropriate time for making a decision, items which are not needed can be delayed making the decision process much simpler.
Think of it this way, to be agile, we need to have flexibility. However, the criticism is that with flexibility comes chaos. How can we bring in the latest information and use it for decisions in an orderly way – without disrupting everything we’ve been planning? We need a way to make a decision based on a logical framework, and Real Options is one of the techniques that has been developed to do just that.
It starts with the question, “What is the latest point at which a decision can be made?” Anything before that means we may have missed important late breaking information. Anything after that, and the decision is made for us.
In other words, there is a valid reason for Procrastination.
Elements
It’s a little different from how we normally think about problems and decisions.
First, An option is only an option if it can expire. Otherwise there’s never a reason to decide. So by definition, options have a point where they can expire. That can be a point in time, or an event that triggers a decision point. So long as it can expire.
Next, if this option is taken, one or more other options are excluded. This is a choice of one out of more than one, with one choice winning. If a competing option is still available after the choice, then it was not paired with the right option. In other words, it wasn’t understood correctly.
If there’s a “cannot” phrase associated with the option, then it isn’t an option either. Options are only options if they can be put in place. If there’s a reason it cannot, then it isn’t an option.
That sounds intuitively true when you think about it. But we don’t usually think about it that rigorously.
In addition, options must exist within organizational commitments, such as standard tools, acceptance criteria and delivery.
As mentioned, they must have a means or time when they expire, after which the choice is made for you instead of by you.
The earliest option defines the end date for the collection of information in order to maximize the ability to make a decision.
Description
There are 3 statements that are important to remember, highlighted in the Process section here.
- Options have value
- Options Expire
- Never commit early unless you know why And this belongs to the Product Management or Refinement context, directed toward the Internal Team.
Usage Considerations
As we stated at the beginning, Real Options simplifies decision making by allowing the decision-maker to focus on decisions that are needed now, instead of the entire project upfront. This removes complexity and allows decisions to be prioritized based on events, time, or other constraints.
But it isn’t the most intuitive way to think about decisions, which means – though it simplifies the decision itself, the process supporting this technique is not so simple.