3. Risk Analysis for RFID Investments Under Uncertainty

Radio Frequency Identification (RFID) technology is one of the straightforward technologies being used by a number of both manufacturing and service systems. Investments in RFID technologies are expected not only to reduce costs but also to increase business value. Moreover, integrating achievements and costs of RFID investments in a consistent manner may present additional investment opportunities. That being the case, risk assessment becomes the critical success factor in RFID investments. In this chapter, risk model which considers both costs and benefits of RFID investments is developed. The internal rate of return (IRR) is regarded as the performance measure for investments. Monte-Carlo simulation is utilized for obtaining outputs from the risk model. Hypothetical application of the model is included so as to demonstrate its practicality. Sensitivity analysis is made to review the influence of stochastic variables on IRR. The results indicate that the model is appropriate for real-life applications. Moreover, IRR has shown the highest level of sensitivity to customer demand.