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Summary

This study introduces a combined stochastic process and value-at-risk (VaR) method for evaluating electronic commerce expansion. The approach quantifies maximum potential losses, aiding managers in information system/information technology (IS/IT) project decisions under uncertainty.

Keywords:
information systemstochastic processuncertaintyvalue at risk (VaR)

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Area of Science:

  • Decision Science
  • Information Systems
  • Financial Risk Management

Background:

  • Electronic commerce expansion decisions involve significant uncertainty.
  • Traditional methods may not adequately capture the risk associated with uncertain benefits.
  • Effective risk quantification is crucial for strategic IS/IT investments.

Purpose of the Study:

  • To develop and apply a novel method for evaluating electronic commerce expansion decisions.
  • To quantify the maximum potential losses of alternative IS/IT projects.
  • To assess the role of uncertainty in IS/IT project evaluation.

Main Methods:

  • Utilized a combined stochastic process and value-at-risk (VaR) methodology.
  • Modeled uncertain benefits within the expansion as a stochastic process.
  • Quantified and compared the maximum losses associated with different decision alternatives.

Main Results:

  • Uncertainty was demonstrated to be a critical factor in evaluating IS/IT projects.
  • The value-at-risk (VaR) method effectively quantified maximum possible losses.
  • The proposed method provides a robust framework for comparing project risks.

Conclusions:

  • The combined stochastic process and VaR method offers a valuable tool for IS/IT project decision-making.
  • Managers can leverage VaR to better understand and mitigate potential financial risks.
  • This approach enhances the strategic evaluation of electronic commerce initiatives.