Assessing risk and uncertainty in new technology investments

Recently, much attention has focused on the shortcomings of traditional capital budgeting models in evaluating new technology investments. It is argued that such models, particularly those based on discounted cash flows, lead managers to favor less promising investments over strategic new technology investments because many benefits of the strategic investments are highly uncertain and cannot be quantified. The riskiness of a new technology investment is difficult to assess because outcome probabilities are difficult to estimate. A theory-based framework is provided for evaluating nonquantifiable uncertainties and multiple aspects of risk in capital investments.