An IT system is being implemented as it has a positive NPV. However, during system development, regulations change and the project no longer has a positive NPV. The real options approach would suggest _________?

The real options approach emphasizes the value of making decisions flexibly in response to changing circumstances, particularly in environments where uncertainties and risks are prevalent. In this scenario, the project initially had a positive Net Present Value (NPV), suggesting that it was a financially viable investment. However, with regulatory changes, the NPV has shifted negatively, indicating that the project is no longer expected to generate sufficient returns.

Given this new information, the real options approach would advocate for reassessing the project's viability. Terminating the project and reallocating resources to a more profitable endeavor allows the organization to minimize losses and focus on more promising opportunities. This approach prioritizes strategic resource management and ensures that investments are consistently aligned with the company's overall financial health.

Continuing with the project simply because of concerns about morale does not take into account the financial implications of a negative NPV, and modifying the project scope may not necessarily restore its profitability in the face of regulatory changes. Consulting stakeholders can be valuable, but it should be done in conjunction with a clear analysis of project viability, particularly under the new regulatory conditions. Thus, terminating the project represents a more prudent decision in alignment with the real options framework.