Economy & Business, Volume 8, 2014

Abstract: This study evaluated the economic value of a renewal project of the Construction Civil Affairs Administrative Service System for Online processing of construction related permissions and licensing in Korea using real options. In this study, the volatility was calculated using the probability distribution of the change in the benefit from the renewal. The change in the economic value was verified through the flexibility of the decision-making such as of the options to defer, contract and expand, to eliminate the future uncertainty. We concluded that a renewal project has economic value even though the passive NPV had a negative(-) value because of the sum of the existing passive NPV and the option premium for the future's uncertainties associated with flexibilities.