Managerial decision-making in hospitals with real options analysis

We present the application of real options analysis (ROA) to a managerial decision-making problem. A case study was developed to illustrate the mathematical steps required to apply ROA. The results of this model show that a net present value analysis, which is most often used in practice, would have led to a sub-optimal decision, as it does not take into account the value of future options and managerial flexibility. Hospitals rarely use quantitative methods like ROA to address their managerial decision-making problems. Usually, simple cost-benefit analysis and subjective assessment are used instead of sophisticated analysis methods and objective data. This paper aims to show the capabilities of ROA and provides details on how to apply it in practice. We discuss the kind of data that is needed to carry out the analysis and how ROA can be integrated into the organizational decision process. To do this, we propose a data-to-decision (D2D) framework. The D2D framework consists of two components: data-to-information (D2I) and information-to-decisions (I2D). D2I suggests the use of quantitative methods, such as ROA, to extract decision-relevant information from data. Based on the generated information, the second component, I2D, supports executives in selecting the best course of action given multiple organizational objectives.