| Summary: | Investment decisions in the development and production of new aircraft models is difficult because of the technical and market uncertainties associated with such a complex process. The accompanying risks can be
mitigated through a flexible approach that incorporates several decision points at different stages of the process. Therefore, as the project evolves, management will be able to diagnose its progress, compare it to
previous expectations, and decide to continue or not. In this paper, we present a methodology to evaluate flexible business strategies that is based on real options analysis (ROA) and Monte Carlo simulation. This methodology takes into account the flexibility that managers have to affect the success of any given project and, therefore, it provides a better estimate of project value. Numerical results are given for a representative process based on actual aircraft manufacturer’s data.
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