Manage Your 'Blind Flight' - The Optimal Timing for IT Project Re-Evaluation

As the value of an IT project can change over time, management is in “blind flight” about the state of the project until the project has been re-evaluated. As each evaluation causes costs, continuous evaluation is economically unreasonable. Nevertheless, the “blind flight” should not take too long, because the project value can considerably deviate from its initial estimation and high losses can occur. To trade off costs of re-evaluation and potential loss of project value, this paper will elaborate upon an economic model that is able to determine the optimal time until re-evaluation considering the risky cash flows of a project. Based on a simulation, we find that it makes good economic sense to optimize the interval of re-evaluation. Therefore, companies are able to avoid financial loss caused by evaluating too early as well as hazarding project value caused by evaluating too late.