Determining competencies economic value through a Fuzzy Real option methodology

This work attempts to bridge economic and organizational assessment methodologies to evaluate the economic impact of individual competencies on value creation process. Competencies are considered as active assets needed to nurture value creation in key organization processes (critical capabilities). The aim of the paper is to propose a methodology to compute the cost-value ratio related to the acquisition or development competencies in a given organizational process. The methodology integrates a multi-attribute decision making method (Analytic Hierarchical Process - AHP) and cost accounting techniques (Activity Based Costing - ABC) to compute the cost and a real option technique to estimate the value of competencies. In particular, a fuzzy real option model is presented. The proposed methodology is based on the idea that acquiring/developing a competence Ci is equivalent to purchasing an option allowing a firm to implement a specific productive process Pj. This, the value of Ci can be estimated from the economic value that the process Pj generates. Fuzzy logic is used to estimate the value of option volatility based on imprecise data as linguistic assertions and estimations provided by process experts. We present the results of the application of proposed methodology to a case study of a small manufacturing firm operating in the packaging sector.