Abstract: The current invention is a method and system to select projects from available projects and to allocate resources to departments to maximize the incremental value gained within a desired execution risk. Probability distribution of departmental capacities is created by performing a Monte-Carlo simulation considering probabilities of future events that may increase or decrease capacity. Real options based value is calculated for all available projects at the start and end of the time period and a subset of the highest incremental value projects is selected to form a trial portfolio. Probability distribution of resource demand is created in each department through a Monte-Carlo simulation of the trial portfolio by specifying each project's resource needs. The capacity and demand characteristics are compared and an execution risk is calculated.

Abstract: A system and method for valuing investment opportunities using real options, creating heuristics to approximately represent value, and maximizing a portfolio of investment opportunities within specified objectives and constraints. The system and method provides a problem solving environment for graphically representing complex valuation and decision problems, valuing them using real option analysis or discounted cash flow analysis, and creating heuristics between value and fundamental parameters. The system allows a user to graphically create a decision problem that allows combining options of both American and European types, fixed cash flows, and probabilities of technical success in whatever sequence is needed. The system also enables a user to describe parameters of the decision problem in names or in numbers in preformatted sheets or make connections to existing databases that hold the necessary information. Built in intelligence provides a user with on-demand tools to calculate valuation parameters.