FIN.8:4.1 - Establish the choice and what makes it available

Name the holder, underlying asset or activity, exercise actions, window and expiry. Recover the actual financial right through FDM when disputed. For operational flexibility, identify the capacity, access, implementation time and people or counterparties required to act. A plan to switch suppliers is not an available switch if qualification takes longer than the decision window. A plan to abandon is not a costless right to disregard existing obligations.

Describe what the action changes in cash and future choices. Waiting postpones commitment and can preserve a later investment decision. Expansion adds scale; contraction reduces it. Switching changes an operating mode or input. Abandonment ends an existing activity and creates its actual exit consequences. Several of these may coexist, but they can exclude or enable one another. Selling equipment may surrender the ability to restart; installing flexible equipment may permit repeated switching.

Distinguish holding a choice from buying or creating it. An existing right can have value even if no new acquisition payment is required. A reservation fee, pilot, license, extra design cost or capacity commitment may create a new choice; retain its full incremental cost and the alternatives for obtaining access. Count costs of keeping the right alive, as well as later exercise costs. A nonrefundable fee belongs in today’s acquisition decision even when the optimal later action is not to exercise.