A Real Options Perspective to Enterprise Architecture as an Investment Activity

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Pallab Saha


The ever-increasing expenditure on information technology (IT) is accompanied by an increasing demand to measure the business value of such investments. This has prompted enterprises to take an architectural view of their information systems (IS) and supporting technologies. However, many crucial enterprise architecture frameworks and guidelines are characterized by lack of adequate theoretical or conceptual foundations. Important but inadequately formulated concepts include architectural assessments, governance and architecture maturity models. These, though central to the enterprise architecture blueprinting and implementation process, remain in their current formulations largely wisdom driven rather than engineering based approaches. Absence of adequate scientific or mathematical foundations for enterprise design and engineering significantly impede enterprise architecture initiatives. The current body of knowledge is limited to reference architectures where the implementation challenges are left to the enterprises themselves. This paper views enterprise architecture development as largely a process of decision making under uncertainty and incomplete knowledge. Taking value maximization as the primary objective of the enterprise architecture decision-making process, the paper attempts to develop guidelines for value enhancement. The paper assumes that portions of the value in an enterprise architecture initiative is in the form of embedded options (real options), which provide architects with valuable flexibility to change plans, as uncertainties are resolved over time. Plausibility of using such an approach to develop a better account of critical enterprise architecture practice is focused on three areas: (1) the timing of critical architectural decisions; (2) architecture development for adaptability and change; and (3) phased approach to enterprise architecture maturity enhancement.

Journal of Enterprise Architecture

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