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A quantitative approach to risk-driven strategy formulation: A case study introducing a real-options framework

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Submitted   Aug 27, 2022
Published   Nov 2, 2022
Issue    Vol 3 No 2 (2022)
DOI   10.25082/FMB.2022.02.006

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Alberto Bettanti corresponding author
Faculty of Management Engineering, Università degli Studi di Genova, Genova, Italy
Antonella Lanati
Vita-Salute San Raffaele University, Milan, Italy

Abstract

The thesis of this article advocates that a quantitative and analytical approach to the business value vs. risk relationship can effectively support company strategy formulation processes dealing with uncertain business scenarios. Within the grounded theory methodology, a suitable case study was selected among SMEs, and a real-options (RO) framework was applied to address the research question. This inductive-empirical methodology shows that the RO framework, in conjunction with the Montecarlo method, is a valuable tool capable of supporting the best strategy formulation by purposefully connecting risk with business value. Furthermore, it has been demonstrated that the RO framework can maximize business value in markets characterized by deep fundamental uncertainty. This article is of interest to both scholars and practitioners. Strategic thinking research can benefit from the conclusions of this paper by conceptually reinforcing strategy formulation theories based on organizational resource-investment choices exploited through the RO lens. Practitioners can verify the strengths of the RO framework in practice. Moreover, they can adopt the combined use of the RO framework and the Montecarlo method as a leading factor for strategy-setting processes and a trigger for shaping strategic risk management practices within their reference industry.

Keywords
strategic risk management, strategy formulation, real-options, RO valuation, risk-driven decision-making, enterprise risk management

Article Details

How to Cite
Bettanti, A., & Lanati, A. (2022). A quantitative approach to risk-driven strategy formulation: A case study introducing a real-options framework. Frontiers in Management and Business, 3(2), 238-251. https://doi.org/10.25082/FMB.2022.02.006
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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

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