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Combined Stochastic Process and Value at Risk: A Real-World Information System Decision Case
Liang-Chuan Wu1, Liang-Hong Wu2, Fan-Yun Pai3
1Institute of Technology Management, National Chung Hsing University, 250 Kuo Kuang Rd., Taichung 402, Taiwan.
Abstract:
In this study, we used a combined stochastic process and value-at-risk (VaR) method to examine an electronic commerce expansion decision. By modeling uncertain benefits as a stochastic process, maximum losses of alternative decisions were quantified and compared to help managers to make information system/information technology (IS/IT) project decisions. Our results, based on the maximum loss perspective, demonstrated that uncertainty plays a critical role in evaluating IS/IT projects. More importantly, the results illustrate that VaR serves as a useful tool in decision-making for managers to quantify the value of maximum possible loss and to help them reach decisions.
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