Minimizing the economic cost and risk to Accelerator-Driven Subcritical Reactor technology. Part 2: The case of designing for flexibility

Cardin, Michel-Alexandre; Steer, Steven J.; Nuttall, William J.; Parks, Geoffrey T.; Gonçalves, Leonardo V.N.; Neufville, Richard de

doi:10.1016/j.nucengdes.2011.11.026

Cited by 11 publications

(7 citation statements)

References 32 publications

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“…Manufacturers could choose to develop many vehicles at once but this would be hardly exercising an option. Real option ideas have been previously applied to engineering design [8][9][10][11][12][13][14][15][16] and these studies are reviewed in Sec. 2.…”

Section: Introductionmentioning

confidence: 99%

“…R&D investment and redesign decisions differ from financial decisions, such as setting a price, because they cannot be implemented immediately. Cardin et al [14] accounted a time lag between the decision to enable a flexibility and the decision to make this flexibility operational (time to build). In the automotive industry, the time gap between initial planning and production is at least two years [18].…”

Section: Introductionmentioning

confidence: 99%

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Robustness and Real Options for Vehicle Design and Investment Decisions Under Gas Price and Regulatory Uncertainties

Kang

Bayrak

Papalambros

2018

Journal of Mechanical Design

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Manufacturers must decide when to invest and launch a new vehicle segment or how to redesign vehicles existing segment under market uncertainties. We present an optimization framework for redesigning or investing in future vehicles using real options to address uncertainty in gas price and regulatory standards like the U.S. Corporate Average Fuel Economy (CAFE) standard. In a specific study involving a product of gasoline, hybrid electric, and electric vehicles (EV), we examine the relationship between gas price and CAFE uncertainties to support decisions by manufacturers on product mix and by policy makers on proposing standards. A real options model is used for the time delay on investment, redesign, and pricing, integrated with a robust design formulation to optimize expected net present value (ENPV) and net present value (NPV) robustness. Results for nine different scenarios suggest that policy makers should consider gas price when setting CAFE standards; and manufacturers should consider the trade-off between ENPV and robust NPVs. Results also suggest that change of product mix rather than vehicle redesign better addresses CAFE standards inflation.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Robustness and Real Options for Vehicle Design and Investment Decisions Under Gas Price and Regulatory Uncertainties

Kang

Bayrak

Papalambros

2018

Journal of Mechanical Design

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“…Some researchers offer frameworks for embedding adaptability within engineered systems architectures [e.g., Pierce, 2010] while others propose methodologies to quantify the level of adaptability, for example, in embedded automotive systems [Gustavsson and Axelsson, 2008], in computing systems [Reinecke, 2010], in construction of large structures [Schmidt, Vibaek, and Austin, 2014] and in a generic form [Hölttä-Otto et al, 2012]. Of course, systems designed along modular architecture, that is, composed of separate functional modules interacting via standard interfaces, could be adapted to new requirements with relative ease and at a low cost [Cardin et al, 2012]. Conversely, if the system architecture is not well modularized and especially if it is highly integrated, then the adaptation process may be difficult and expensive [Zhang et al, 2011].…”

Section: Introductionmentioning

confidence: 99%

Advancing Architecture Options Theory: Six Industrial Case Studies

Engel

Reich

2015

Syst. Engin.

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Systems provide value through their ability to fulfill stakeholders’ needs. These needs evolve and often diverge from an original system's capabilities. Thus, a system's value to its stakeholders diminishes over time. Consequently, systems have to be periodically upgraded or replaced. Since replacement costs are often prohibitive, system adaptability is valuable. Adaptability entails the ability to modify an existing system or design of a system's architecture, such as changing, adding, removing, or replacing relevant elements as well as adjusting their reciprocal interactions. In 2008, Engel and Browning proposed a Design for Adaptability concept based on Architecture Option (AO) theory. AO fuses Financial Options and Transaction Cost theories, seeking to design systems for optimal lifetime value. They asserted that designers should balance the benefits of adaptability against its affordability. More modularity is not always better; the amount of modularity alone is an insufficient and even misleading cause of value. This follow‐up paper reports on a project, aimed at enhancing the AO theory and validating its applicability within diverse industrial environments. Through interactions with practicing system developers, the AO model was simplified and a modified Black–Scholes model was adapted into the engineering domain and successfully practiced. Six case studies were conducted within: food packaging, machine tools, automotive, aerospace, communication, and optoelectronics industries. All six industrial participants estimated, among other improvements, over 15% benefits in (1) reducing systems’ lifetime cost, (2) reducing systems’ upgrade cycle‐time, and (3) increased systems’ lifespan. These results demonstrate the industrial applicability and validity of the AO theory.

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“…p Probability of gas price being increasing u Proportional increase in gas price d Proportional decrease in gas price σ Volatility of gas price G Initial gas price r Risk-free interest rate C Redesign cost ρ Planetary gear ratio F R Final drive ratio the decision maker waits until uncertainty (or risk) is reduced (or "hedged") and commits to a decision at subsequent periods using the latest market information. Several studies have applied real options ideas to engineering design [2][3][4][5][6][7][8][9][10].…”

mentioning

confidence: 99%

“…Design decisions differ from financial decisions such as setting a price, in that they cannot be implemented immediately. Cardin et al [8] have accounted for a time lag between the time the decision to exercise the flexibility is made and the time this flexibility is actually operational. This is often referred as "time to build".…”

mentioning

confidence: 99%

A Real Options Approach to Hybrid Electric Vehicle Architecture Design for Flexibility

Kang

Bayrak

Papalambros

2016

Volume 2A: 42nd Design Automation Conference

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Manufacturers launch new product models at various time increments to meet changing market requirements over time. At each design period, product design and price may change. While price decisions can be made at product launching time, redesign decisions must be made in advance. Real options theory addresses such time gap decisions. This paper presents a real options approach with a binomial lattice model to determine optimal design and price decisions for hybrid electric vehicles (HEVs) that maximize expanded net present value of profit under gas price uncertainty over time. Results confirm that we can obtain changing vehicle attributes by changing gear ratios rather than the architectures themselves due to high cost of redesigning. A parametric study examines the impact of gas price volatility on option decisions and shows that larger volatility of gas price causes the change option to be selected more frequently.

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Minimizing the economic cost and risk to Accelerator-Driven Subcritical Reactor technology. Part 2: The case of designing for flexibility

Cited by 11 publications

References 32 publications

Robustness and Real Options for Vehicle Design and Investment Decisions Under Gas Price and Regulatory Uncertainties

Robustness and Real Options for Vehicle Design and Investment Decisions Under Gas Price and Regulatory Uncertainties

Advancing Architecture Options Theory: Six Industrial Case Studies

A Real Options Approach to Hybrid Electric Vehicle Architecture Design for Flexibility

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