Escalation and premature termination in MIS projects: the role of real options

Purpose – The purpose of this paper is to examine how the real option theory is applicable to evaluation of cases of escalation and premature termination of Management Information Systems (MIS) projects.Design/methodology/approach – The paper compares the implications of psychological and economic escalation theories with lessons from the real option theory as applied to MIS projects. Then, it examines published case studies, and discuss when project continuation enhances and reduces value for the manager and the firm.Findings – Escalation of commitment is continuation of an investment project after receiving negative signals. Escalation was identified as a significant problem in MIS projects often explained by the desire of the manager to avoid recognizing mistakes and to protect reputation. The opposite problem of premature termination of certain investment projects was also identified. This study argues that accurate application of real option theory is critical to distinguish between escalation and pr...