Interactive Binomial Tree Analysis for Engineering Projects
Wait before investing to reduce uncertainty. Modeled as a call option with project value as underlying and investment cost as strike.
Scale up successful projects. Call option with expanded project value as underlying and expansion cost as strike.
Exit projects early and recover value. Put option with project present value as underlying and salvage value as strike.
Switch inputs/outputs flexibly. Call on value difference: max(S_B - S_A - K, 0)
Enter parameters and click calculate to see results
Interpretation will appear here after calculation
Tree visualization will appear here after calculation
In traditional project evaluation, we calculate Net Present Value (NPV) and go with the best-looking number. But real-world projects arenβt that simple, right?
π Markets shift.
π Technology changes.
π You might want to wait, expand, abandon, or even switch projects.
Thatβs where Real Options come in! π§
A real option gives you the right (but not the obligation) to make a strategic move β at the right time, under the right conditions.
Imagine you're navigating a branching path π§. Every step forward leads to more possibilities β values go up π or down π based on volatility. That's what the binomial tree model does!
It simulates all possible outcomes of your projectβs value and helps you evaluate your best strategy at each decision point.
Our interactive web app supports four key types of real options:
β³ Wait before investing to reduce risk.
π Example: A $100M factory build might be worth more if you wait a year. Use the tool to find out!
π Scale up operations if things go well.
π Example: A $60M renewable plant that can double in size β should you expand later or now?
πͺ Exit gracefully if the project turns sour.
π Example: A $40M product line that can be scrapped for $30M if sales flop. Is the option worth it?
π Switch from Project A to B when the market favors it.
π Example: Start with Project A, but switch to Project B next year if it looks better. Should you bake this option into your plans?
π‘ Tip: You can also use our NPV Calculator to estimate the base project value. π
Here's what youβll walk away with:
π Clear understanding of when and why to delay, expand, abandon, or switch
π Protection against bad outcomes
π Confidence to invest when the timing is right
π§ A mindset that treats uncertainty as an opportunity, not just a risk
Whether youβre a project manager, analyst, student, or engineer making big decisions β this tool is your secret weapon for navigating uncertainty! π―
Stay flexible. Stay smart.
Only at EngiSphere π
