THE OPTIMAL REPLACEMENT POLICY FOR LARGE INFORMATION SYSTEMS WITH REFERENCE TO OBSOLESCENCE

Abstract

  The system obsolescence driven by the change in drivers' needs and technological innovation should be considered in order to investigate the replacement strategies of the large information systems. The obsolescence processes are characterized by a lot of uncertainties. In such circumstances, there exist 1) information options made by postponing the replacement timing, and 2) extension options driven by securing the possibilities to be introduced in future. In this paper, the optimal system replacement model is formulated in order to investigate the optimal replacement timing and the best milieus of subsystems to maximize the expected net benefits. The methodology is presented to measure the values of real options for the systems replacement. The methodology is applied to the optimal replacement problem of the large traffic control systems in the real world.