Comparison of project evalution methods in public sector projects: real option can be alternative?

Investment projects are put forward by public sector to increase welfare, fix macroeconomic sustainability, meet needs of citizens. To gather what the returns of public investment projects and the profitability of the investment project, various project evaluation techniques are being used. Mostly conventional evaluation techniques are being used for decades, and moreover modern evaluation techniques are newly used less. Real option method, one of modern evaluation techniques, aims to show that a unprofitable project will turn into a profitable project in times. Our country, which locates in semi-climatic zone, has a total (technically and economically) usable water potential (surface and ground) of 112 billion m3. According to 2019 official population stats, 82.003.882 people live in our country. According to official stats, the amount of usable water potential per capita is approximately in 2019 is 1.366 m3/y, so our country is considering as a country having water scarcity in international criteria. For this reason, in the framework development policies, it is so vital to put forward investment projects by public sector to use the water potential to meet the current and future needs efficiently, effectively and in a sustainable way. These projects are long-life projects that have high initial investments, have high risks, have high added value. To evaluate these public sector projects, conventional project evaluation techniques such as net present value are mostly used. If the project found unprofitable as a result of the evaluations with conventional techniques, the project is rejected and laid aside after the feasibility phase. Our country has water scarcity, so it is so important to develop water resources and water storage. In this study, it is presented that a project, which is rejected after evaluated with conventional evaluation techniques not considering flexibility and risk, whether can turn into a profitable project after evaluated with real option method.