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"Complex" Real Options - Title Page - MIT

"Complex" Real Options - Title Page - MIT

was not enough found to

was not enough found to be able to answer the research question. Second, the peopleinterviewed had a range of practical experience with either the BWB aircraft, the BoeingCompany, or with some aspect of commercial aircraft manufacturing enterprises ingeneral. The practical experience that they had could be tapped to better understand thepractical challenges associated with “complex” real options in complex systems.The data that was desired from the interviews covered practical challenges associatedwith the entire life-cycle of the option as well as the different types of drivers thatinfluence the steps in the LCF Framework. A reminder of the phases in an option’s lifecyclere-appears in Figure 6-3. The specific steps of the LCF Framework that played arole in the interview process are highlighted in Figure 6-4.Figure 6-3 Life-cycle of an option.Figure 6-4 LCF Framework steps of interest for BWB case study.The following section discusses the interviewee selection.226

6.1.3 INTERVIEWEE SELECTIONAs the interviews formed the primary data source for the BWB case study, the selectionof the interviewees was important. The ideal set of interviewees would satisfy twoobjectives. The first objective was to have a set of interviewees that would facilitatecollection of data on challenges facing “complex” real options in complex systems.Ideally, the interviewees would represent the breadth of stakeholders involved incommercial aircraft manufacturing enterprises. The second objective was to have depthin the set of interviewees, which would allow cross-checking of data provided byindividual interviewees.Due to time limitations and difficulty in arranging interviewees the first objective wasgiven priority. While breadth was the priority in selecting interviewees, during thecourse of the interviews there was some overlap in the discussions held. This allowedinterviewee statements to be cross-checked against one another. The cross-checkingfacilitated follow-up questions during interviews to better understand issues andinterviewee’s perspectives.Selecting the interviewees occurred in three steps. First, in order to satisfy the breadth ofstakeholder perspectives that was desired for the research, organizations internal toBoeing that were deemed important to either the BWB or to commercial aircraftmanufacturing in general were identified. Second, the types of people that were thoughtto have the most relevant perspectives related to understanding challenges associatedwith “complex” real options in complex systems were identified. As a general rule, itwas believed that people higher in the organization’s hierarchy would be the best tointerview. This was because the people higher in the organization often have a widerrange of concerns, including financial, managerial and political. As the LCF Frameworkattempts to address these types of challenges in flexible systems, the perspectives of thislevel of people was desired. Finally, a snowball sampling technique was employed. Thismeans that after an interview was completed, the interviewee was asked to provide thenames of other people they felt would also be good to interview. Having just completedthe interview process themselves, the interviewee’s had an increased familiarity of theresearch topics of interest, and the snow ball technique provided additional high-qualityinterviewees that otherwise would not have been contacted.The stakeholders that were contacted for this case study fell into two broad categories, asshown in Table 6-1. The first category consisted of stakeholders directly involved withan aircraft manufacturer, specifically in this case the Boeing Company. Stakeholderswithin the Boeing Company representing a variety of functions were interviewed, asshown in the table. The second category consisted of interviews of people currentlyprimarily in academia. All of the people contacted in this category either had explicitprior or current first hand experience with the Boeing Company.227

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    ACKNOWLEDGEMENTSThis dissertation i

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    students. I am sure I am missing pe

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    6.7 Enterprise and Institutional Ch

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    Table 8-8 Summary of existing mode

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    Figure 3-17 System management loop

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    Figure 5-13 Historical world annual

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    Figure 7-19 Decision path for ITS m

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    Figure 10-3 Summary of differences

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    1. A large commercial aircraft maki

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    made to the system are often not on

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    From the MIT Engineering Systems Di

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    enterprise, the enterprise itself m

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    system capable of coping with uncer

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    Ch. 2Ch. 3Ch. 4Ch. 7Ch. 5Ch. 8Ch. 6

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    applicability of the framework. Fin

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    Myers, S. (1977) Determinants of Ca

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    FindingsFigure 2-1 Research process

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    • Difficult to predict future beh

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    As is apparent in the literature, t

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    of these. Ideally, either with the

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    do not appear to be mutually exclus

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    The ability for a system to activel

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    price (the option price) for the fl

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    and the results can be easier to ex

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    For some real options this appears

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    there is value to waiting to see wh

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    2.5 REAL OPTION PROCESSESExisting p

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    option is then evaluated with a “

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    • Option to engage in exploration

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    elatively straight-forward and are

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    OptionComplexityReal option in syst

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    2.8 REFERENCESAllen, T. et. al. (20

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    Hayes, R. and D. Garvin. (1982) Man

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    Ross, A. (2006) Managing Unarticula

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    3 LIFE-CYCLE FLEXIBILITY (LCF) FRAM

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    3.1 OVERVIEW OF NEED FOR LIFE-CYCLE

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    Figure 3-3 Condensed version of the

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    level, the appropriate enterprise n

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    3.1.2.1 Conceiving an OptionThe abi

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    3.1.2.2 Design and Evaluation of Op

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    option holder can not exercise the

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    system’s underlying structure and

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    3.2.2 DECISION TO USE LCF FRAMEWORK

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    Figure 3-11 Integration of decision

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    ounded rationality is not an issue,

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    quantitative analysis chapters, Sec

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    meantime, the land now would have d

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    3.2.5 DESIGN STRATEGY FOR OPTION EX

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    anticipated that external political

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    Figure 3-16 illustrates how the str

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    3.2.6 MANAGING THE SYSTEMManaging t

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    System Management LoopFigure 3-17 S

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    System Management LoopSystemImpleme

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    Long-term Management Loop ofUnknown

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    Long-term Management Loop of Unknow

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    Enterprise Readiness is included as

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    Figure 3-23 Condensed LCF Framework

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    3.4 REFERENCESAllen, T. et. al. (20

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    4 FLEXIBILITY IN BLENDED WING BODY

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    4.1.1 THE EARLY YEARSAfter the firs

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    Figure 4-2 Sikorsky S-42 Flying Boa

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    The 1950’s saw aircraft shift fro

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    to the government for doing so, wou

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    Figure 4-7 European supersonic civi

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    While airlines compete on a variety

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    Figure 4-11 Comparison of several l

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    Figure 4-12 Foreign and domestic so

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    Figure 4-14 Drawings from Leonardo

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    shifting their body weight) to the

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    Figure 4-19 Semi-monocoque construc

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    With a bi-wing (or tri-wing) constr

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    Figure 4-24 Loads and lifts generat

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    Figure 4-25 747-8, showing both loc

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    Additional benefits of the BWB arch

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    4.4.1 BWB OPTION DECISION PATHSFor

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    lower costs, higher scales of econo

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    Miller, B. (2005) A Generalized Rea

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    5 VALUE OF FLEXIBILITY IN BLENDED W

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    This chapter is composed of three m

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    this research were deemed necessary

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    For clarity of discussion, a high l

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    model, a better understanding of co

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    An overview of each of these subsys

  • Page 175 and 176: important and may make inroads into
  • Page 177 and 178: Figure 5-9 Airline finances and pro
  • Page 179 and 180: Figure 5-10 Airline profitability,
  • Page 181 and 182: Product design is based on a trade-
  • Page 183 and 184: The airframe manufacturer productio
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  • Page 187 and 188: 5.2.5 MODEL VALIDATIONThe system dy
  • Page 189 and 190: Forecast data (all planes)Model dat
  • Page 191 and 192: 5.3.1 INHERENT BENEFITSBWB technica
  • Page 193 and 194: minor differences between aircraft
  • Page 195 and 196: The remainder of this section looks
  • Page 197 and 198: derivative depends on corporate str
  • Page 199 and 200: Table 5-1 Number of derivatives lik
  • Page 201 and 202: LowFuelCosts35%30%HighFuelCostsProb
  • Page 203 and 204: The results presented can be interp
  • Page 205 and 206: Compared to the Boeing 787, the dev
  • Page 207 and 208: than a European option, because of
  • Page 209 and 210: In the opposite case where the BWB
  • Page 211 and 212: Because of the consequences of exer
  • Page 213 and 214: 35%30%Probability25%20%15%10%5%0%$-
  • Page 215 and 216: BWB does not seem to offer advantag
  • Page 217 and 218: type plane, relative to conventiona
  • Page 219 and 220: 5.4 REFERENCESAirbus. (2006) Annual
  • Page 221 and 222: 6 CHALLENGES OF FLEXIBILITY IN BLEN
  • Page 223 and 224: FindingsFigure 6-1 Case study analy
  • Page 225: Figure 6-2 Characteristics of case
  • Page 229 and 230: Table 6-2 ITS case study organizati
  • Page 231 and 232: about flexibility, i.e. is it a goo
  • Page 233 and 234: 2. If flexibility is used, can you
  • Page 235 and 236: case with BCA, which has embraced a
  • Page 237 and 238: primarily through military and NASA
  • Page 239 and 240: Figure 6-7 Delivery and market fore
  • Page 241 and 242: to meet rising demand, the overall
  • Page 243 and 244: Another option widespread in the ai
  • Page 245 and 246: design, evaluate or manage flexibil
  • Page 247 and 248: Interviewee views on flexibility ce
  • Page 249 and 250: and evaluations are based around th
  • Page 251 and 252: operating and maintenance costs by
  • Page 253 and 254: when fuel costs increased substanti
  • Page 255 and 256: options, such as cross-program deri
  • Page 257 and 258: 6.9 REFERENCESAirbus. (2007) Produc
  • Page 259 and 260: 7 FLEXIBILITY IN HOUSTON GROUNDTRAN
  • Page 261 and 262: Figure 7-2 Characteristics of case
  • Page 263 and 264: cases can be added to existing or n
  • Page 265 and 266: 7.2.2 STANDARD ITS TECHNOLOGIES AND
  • Page 267 and 268: • increased opportunities for pri
  • Page 269 and 270: for Inherently Low Emitting Vehicle
  • Page 271 and 272: Marker 2005). This type of cross fu
  • Page 273 and 274: Figure 7-4 Plastic pylon separated
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    operating conditions. Additional ro

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    DSRC based system would require a l

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    Houston has already deployed one of

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    Figure 7-13 Transit center location

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    Figure 7-15 Houston’s managed lan

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    as HOT or TOT lanes. This can be es

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    BuildtraditionalinfrastructureDelay

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    HOT / BRTlaneNon-flexibleTOT / BRTl

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    BuildtraditionalinfrastructureDelay

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    or improved safety functions could

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    Haning, C. and W. McFarland. (1963)

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    8 VALUE OF FLEXIBILITY IN HOUSTON G

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    attempt was made to completely repr

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    Figure 8-4 Quantitative analysis pr

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    8.2.1.1 Travel Demand ModelingThe t

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    ange of traffic analysis studies to

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    I-10 KatyFreewayI-610(innerloop)Bel

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    5 lanesFigure 8-10 Example of satel

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    Beltway 8(secondary loop)I-610 (inn

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    8.2.2.5 Major Modeling AssumptionsD

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    from a public agency that is intere

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    funding improvements that would pre

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    This is because of the low-cost of

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    From the analysis above, with the d

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    Figure 8-16 Addition of two general

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    capabilities are typically deployab

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    Table 8-5 Benefit-Cost Ratios for K

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    35%30%25%Probability20%15%10%5%0%$(

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    Figure 8-20 NPV density function, w

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    Table 8-6 Summary of flexibility to

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    Figure 8-23 Comparison of ITS/delay

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    vehicles would continue to gain fre

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    Figure 8-24 Value of time savings f

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    This illustrates the importance of

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    Table 8-10 Summary of ITS case stud

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    Similar to the above discussion of

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    9 CHALLENGES OF FLEXIBILITY IN HOUS

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    new challenges as well as increase

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    9.2 QUALITATIVE ANALYSIS PROCESSPre

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    The qualitative research methodolog

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    to be able to answer the research q

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    Table 9-1 Functional activities per

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    USDOT, Volpe Center, Officeof Syste

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    3. If flexibility is used, can you

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    • Increased data sources - The no

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    importance that Harris County plays

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    Figure 9-7 H-GAC area of responsibi

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    Figure 9-9 State level stakeholders

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    9.3.2.3 State Legislators and Gover

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    met with business interests before

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    The resulting plan forecasted more

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    Discussions with interviewees with

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    Currently, the cross section of the

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    Also of interest is another part of

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    y the Southern Pacific Railroad. In

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    9.6 PROCESSES FOR IDENTIFYING, DESI

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    The federal level interviewee conti

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    may not be tied to a physical proje

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    During the interview process, sever

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    Figure 9-15 Katy Freeway configurat

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    Monitor/ManageFigure 9-16 Summary o

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    company on a schedule to complete t

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    interviewees commented on the ongoi

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    facilities has created a lack of wi

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    eversible HOV lanes as a safety pre

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    the real option and the decision to

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    • Mechanism for creating pressure

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    9.9.2.2 Uncertainty as a Result of

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    option purchase price. This was bec

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    9.10 REFERENCESABC7. (2004) Chicago

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    Judd, D. and T. Swanstrom. (2004) C

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    10 FINDINGS AND CONCLUSIONSChapter

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    concerns the use of real options

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    Table 10-1 Summary of major researc

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    to a system. Rather, these options

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    future option exercise can prevent

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    Q1-2. The case studies provided a d

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    Currently, the Silver Line right-of

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    technical system as well as the soc

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    In the ITS case study, the transpor

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    system that the technical system is

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    option exercise unlikely (building

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    some future date. This type of wast

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    DesignPhaseEvaluationPhaseManagemen

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    ITS capabilities used to create the

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    technical and social components of

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    incorporated directly into the mode

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    As defined in Section 2.6, the diff

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    In the BWB case study, an enterpris

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    For “standard” real options it

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    “Standard” real options are des

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    From the research it was found that

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    d. Evaluating the option with quant

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    need for the system is, while simul

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    10.7 REFERENCESClemons, E. and B. G

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