DOI : https://doi.org/10.18517/ijaseit.15.3.20561

Comparison between Information Technology Value through Partial Adjustment Valuation and Real Options Approaches

Lukman Abdurrahman (1), Mochammad Arif Bijaksana (2)
(1) Department of Information Systems, School of Industrial and Systems Engineering, Telkom University, Bandung, Indonesia
(2) Department of Data Science, Faculty of Informatics, Telkom University, Bandung, Indonesia
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L. Abdurrahman and M. Arif Bijaksana, “Comparison between Information Technology Value through Partial Adjustment Valuation and Real Options Approaches ”, Int. J. Adv. Sci. Eng. Inf. Technol., vol. 15, no. 3, pp. 919–929, Jun. 2025.
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Information Technology (IT) plays a pivotal role in driving business innovation, operational efficiency, and competitive advantage. However, valuing IT investments is complex due to uncertainties, the intangible benefits, and the long-term nature of many IT projects. Traditional financial metrics, such as Net Present Value and Internal Rate of Return, often fall short of capturing the dynamic nature of IT investments. This paper introduces two advanced approaches to IT valuation: Partial Adjustment Valuation and Real Options Theory. PAV captures the incremental nature of IT adjustments due to organizational inertia or financial constraints, while ROT offers a framework for valuing the flexibility of IT investment decisions under uncertainty. Through an examination of both theories and their application to real-world IT investments, this paper presents a more comprehensive methodology for evaluating IT value in a rapidly evolving technological landscape. Furthermore, this paper applies the theories to three case studies across different industries: cloud computing infrastructure investment, ERP system deployment in a multinational manufacturing firm, and digital platform development for a technology startup. The case studies show that by capturing the incremental nature of IT adoption through PAV and by valuing the strategic flexibility inherent in these projects through ROT, firms can make more informed and adaptable investment decisions. The findings from these case studies underscore the critical importance of embracing a dynamic, flexible valuation framework for IT investments. By integrating PAV and ROT, organizations can optimize their IT capital allocation; here, ROT is at 9-10 compared to PAV at 6-8. Thus, ROT is better.

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