Corporate Decision Making: Protecting Against Power Outage Loss

This research focuses on a firm’s decision processes related to protecting against power outage loss. The case study example finds that the firm does not use a normative method of investment analysis. Most financial analysis is conducted after the project has already been selected. Even in postselection analysis we see deviations from the normative model, particularly the addition of a risk factor above the cost of capital as well as probability neglect. As a result, this research utilizes a sequential behavioral model to describe the firm’s processes. An event driven mentality combined with capital constraint are two key drivers of the behavioral model.