Journal article
A Real Options Model for Workforce Cross-Training
The Engineering economist, Vol.50(2), pp.95-116
04/01/2005
DOI: 10.1080/00137910590949850
Abstract
In this article, we propose using a real options framework to model and financially value a cross-training policy. The cross-training policy involves a dynamic investment on workforce flexibility. We model it as an approximation of an American call option using binomial lattices. Value stems from the merit of dynamic cross-training compared with the deterministic case using traditional discounted cash flow techniques. This work is discussed in the context of a volatile production system characterized by product dynamics, labor dynamics, task heterogeneity and workforce heterogeneity. Results suggest that cross-training based on the real options approach is dependent on the production capability and the level of workforce heterogeneity. Thus, valuing workforce flexibility using real options has strategic utility beyond that of the net present value approach.
Details
- Title: Subtitle
- A Real Options Model for Workforce Cross-Training
- Creators
- David A Nembhard - Harold & Inge Marcus Department of Industrial and Manufacturing Engineering, The Pennsylvania State UniversityHarriet Black Nembhard - Harold & Inge Marcus Department of Industrial and Manufacturing Engineering, The Pennsylvania State UniversityRuwen Qin - Harold & Inge Marcus Department of Industrial and Manufacturing Engineering, The Pennsylvania State University
- Resource Type
- Journal article
- Publication Details
- The Engineering economist, Vol.50(2), pp.95-116
- Publisher
- Taylor & Francis Group
- DOI
- 10.1080/00137910590949850
- ISSN
- 0013-791X
- eISSN
- 1547-2701
- Language
- English
- Date published
- 04/01/2005
- Academic Unit
- Engineering Administration; Business Analytics; Industrial and Systems Engineering
- Record Identifier
- 9984121869802771
Metrics
8 Record Views