Instructions
You have been asked to review contractual vehicle alternatives for corporate IT operations across headquarters located on four different continents. Googolplex has a decision to make regarding the current contract for manning and resourcing the global IT network infrastructure. Using real options concepts, recommend that Googolplex should compare and contrast each of the following:
Expand the current, centrally managed, and resourced contract (Option to Expand).
Abandon the current model (Option to Abandon) and change to a decentralized contract structure.
Delay any changes to the current model until the next budget cycle (Option to Delay).
Shutdown the operation at a target date in the future (Option to Contract).
Shutdown the operation at some point in the future when conditions are unfavorable but maintain the right to resume operations when conditions improve (Option to Switch).
Use the real options model by applying the Net Present Value, Revenue, and Option to Abandon costs provided. Also, consider the financial and budget trade-offs associated with a centrally managed versus decentralized or regionally aligned contract structure.
There are costs with any change, so doing nothing (Option to Delay) will continue to have a high turnover for the late-night shift, plus the higher salary costs paid for the night crew. Of course, shifting to another model (Option to Abandon) means remote employees, possibly new data centers, and staffing in different countries. You do not have much to go on, so you take a deep breath and start working on the assumptions as you build the model so that you can determine what approach is best.
Write an executive report that recommends the best course of action to the CEO based on real options interpretation.
