The Application of Expand Option of Real Options in Human Resources Evaluation

1 Introduction Human resources evaluation has been re- searched for more than thirty years. At the present it is still a tough issue for researchers. There are two conventional methods for human resource evaluation: the non-currency measurement and the currency measurement. The non-currency measurement mainly uses the methods of skill-detailed-records, achievement-evaluations and so on. The currency measurement models mainly use: the future- return- discounted model or the payment-discounted …

The Application of Expand Option of Real Options in Human Resources Evaluation

The traditional models of evaluating human resources are mainly based upon the discounted value of future payment, but these models fail to take the employment risk into account, and often neglect the uncertainty and underestimate the human resource value. This paper first introduces the option theory, and then presents human resources as the real commodity for the call option. Second, concerning the choices for the uncertainty decision, the decisions of delaying the employment of the human resources, expanding or deducing the scale of human resources, giving up or changing human resources, etc., are made to deal with the future uncertainties appropriately. This will cause the investment to be more beneficial or to reduce the loss. Finally, the expand option theory of real options is used to evaluate the value of reinvestment in human resources, and the expand option theory could be provided as a reference for management implementation and decision-making in human resources.