The traditional approach of project valuation makes unrealistic assumption of single cash flow.

The available methods of evaluating the project are limited and often impractical. Moreover, they do not provide flexibility contingency or do not take into consideration the volatility.

This paper tries to identify the problems associated with the traditional method and focus on a dynamic strategy for evaluating the project. The risk is needed to be managed consciously and different options are developed to identify the risk associated with the project. The question arises as to what is the best method to identify the different options available to a manager? How should managers and designers evaluate risky projects?

The answer is to combine the best methods available and use the hybrid real options. Hybrid Real Options analysis is both reasonable conceptually, and is a practical, efficient way to value risky projects whenever these are particularly risky or expensive to implement over time.

Hybrid real options valuation combines the best features of decision and options analysis. Real options valuation has the further advantage that it increases the assessed value of risky projects. This increase is greatest for projects that are particularly risky or expensive to implement over time.

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* Contributed by -
Jyoti Singh,
PGDBM 2006,
IMT, Ghaziabad.