Real option-based evaluation of eco-oriented investment using the example of closed-loop supply chains

Natural resources should be used as effectively as possible along the entire supply chain. One approach to keep the resources on a high value-added level is the extension of classical supply chains to closed-loop supply chains, covering the whole product life cycle. This requires innovations in products and technologies as well as changes in existing value-added processes. Thus, the required redesign process comes along with extensive investment and a high level of uncertainty and flexibility and can have a significant impact on the success of the company. This paper presents a model, based on the real options theory with a closed-loop supply chain which complements the classic investment approach with ecological aspects of the evaluation. The model allows a qualitative and quantitative assessment of investment decisions associated with uncertainty. Additionally, the possible options for action and the inherent risks are demonstrated. The expansion of the net present value method to real options with external environmental factors and entrepreneurial aspects of design enable in this case the calculation of an extended net present value for realistic evaluation of strategic investments.