Real Options: Dealing With Uncertainty in Systems Planning and Design

Neufville, Richard de

doi:10.1076/iaij.4.1.26.16461

Cited by 145 publications

(78 citation statements)

References 14 publications

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“…Flexible product platform designs are addressed by Suh et al (2007), coupling real options valuation with a structural model for the platform. A real option is in this context normally defined as the right, but not the obligation, to change system configuration at a future time (De Neufville, 2003). As there are technical limitations to using real options analysis in engineering compared to financial applications, it has been necessary to device new methods for evaluation of options "in" physical engineering systems (Wang and De Neufville, 2005).…”

Section: Platforms and Flexibilitymentioning

confidence: 99%

Investigating tradeoffs between performance, cost and flexibility for reconfigurable offshore ships

et al. 2018

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This paper investigates technical performance, acquisition cost and flexibility level for reconfigurable offshore ships. An offshore ship can be configured with various types of equipment; thus, its base structure constitutes a platform from which several end ship design configurations can be derived. A ship with equipment retrofit flexibility will typically have excess stability, deadweight and deck area to ensure physical compatibility. However, there are complex system interactions that need consideration, such as the effects of flexibility on cost and performance. The level of flexibility is quantified using filtered outdegree based on a tradespace network representation of the system. Technical performance is measured in terms of capability, capacity and operability, where a multi-attribute utility function is used to aggregate the total performance for comparison. Findings indicate that increased platform flexibility does increase capacity, but comes at a complex compromise with operability as resistance is increased, and roll periods become unfavorable due to high accelerations.

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Section: Platforms and Flexibilitymentioning

confidence: 99%

Investigating tradeoffs between performance, cost and flexibility for reconfigurable offshore ships

et al. 2018

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“…The dominant approach in many fields has been to ignore the uncertainties, to quantify them into error margins, to try and reduce them, or to deal with only those uncertainties that can be easily quantified (Quade 1982;Dempsey et al 1997;Marchau et al 2009;Van Geenhuizen et al 2007;van Geenhuizen and Thissen 2007;McDaniel and Driebe 2005). However, such approaches suffer from the problem that they focus on those uncertainties that are Bamong the least of our worries; their effects are swamped by uncertainties about the state of the world and human factors for which we know absolutely nothing about probability distributions and Lempert et al 2003;Walker et al 2001;de Neufville 2000de Neufville , 2003Dewar 2002;Dewar et al 1993;Holling 1973;Lempert 2002). These approaches generally contain three types of elements:…”

Section: A New Paradigm For Handling Uncertaintymentioning

confidence: 99%

Dealing with Uncertainties in Fresh Water Supply: Experiences in the Netherlands

Thissen

Kwakkel

Mens

et al. 2015

Water Resour Manage

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Developing fresh water supply strategies for the long term needs to take into account the fact that the future is deeply uncertain. Not only the extent of climate change and the extent and nature of its impacts are unknown, also socio-economic conditions may change in unpredictable ways, as well as social preferences. Often, it is not possible to find solid ground for estimating probabilities for the relevant range of imaginable possible future developments. Yet, some of these may have profound impacts and consequences for society which could be reduced by timely proactive adaptation. In response to these and similar challenges, various approaches, methods and techniques have been proposed and are being developed to specifically address long-term strategy development under so-called deep uncertainty. This paper, first, offers a brief overview of developments in the field of planning under (deep) uncertainty. Next, we illustrate application of three different approaches to fresh water provision planning under uncertainty in case studies in the Netherlands: a resilience approach, oriented to (re) designing fresh water systems in such a way that they will be less vulnerable, resp. will be able to recover easily from future disturbances; a robustness approach, oriented to Water Resour Manage (2017) 31:703-725

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“…ROA can be defined as a process that connects financial and engineering analysis in order to identify and value embedded options related to physical investments (de Neufville, 2003). The aim of the process is to enhance life-cycle performance of a real asset, i.e.…”

Section: Current Focus Of Real Estate Investment Analysismentioning

confidence: 99%

Theory of valuing building life-cycle investments

Vimpari

Junnila

2015

Building Research & Information

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The physical adaptability of buildings is very important in today's fast-changing business environment. The actors who invest in long-term adaptability are positioned better to the changes during the life cycle of a building. This conceptual paper argues that the current dominating real estate (property) investment analysis theories do not accommodate enough building design-related information (i.e. physical asset characteristics), which results in long-term loss of competitiveness and unsustainable use of built environment resources. It is demonstrated that physical asset characteristics can create valuable real options that should be acknowledged in real estate investment analysis and management. The real estate investment literature has not so far been able to produce a widely accepted financial model for justifying life-cycle investments. A theory is proposed here that can be used to value life-cycle investments in buildings. This new theory combines of real options valuation, investment analysis and building component life-cycle design. These themes are used to formulate a conceptual framework for valuing life-cycle investments. The framework is intuitive and transparent, and it can be easily added to current spreadsheet investment analysis tools.

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Real Options: Dealing With Uncertainty in Systems Planning and Design

Cited by 145 publications

References 14 publications

Investigating tradeoffs between performance, cost and flexibility for reconfigurable offshore ships

Investigating tradeoffs between performance, cost and flexibility for reconfigurable offshore ships

Dealing with Uncertainties in Fresh Water Supply: Experiences in the Netherlands

Theory of valuing building life-cycle investments

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