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"Complex" Real Options - Title Page - MIT

"Complex" Real Options - Title Page - MIT

ACKNOWLEDGEMENTSThis

ACKNOWLEDGEMENTSThis dissertation is the culmination of input, work and encouragement of many peoplethat have helped and accompanied me for the years that I have spent at MIT. First, manythanks to my thesis committee. Prof. Joseph Sussman, the committee chair, has providedtime, effort, feedback and support continuously throughout the last five years. Hisdedication to his students and the time and effort he puts into working with each studentis impressive and greater than any professor that I have seen in my long academic careeras a student. Many thanks to Joe for working with me even through I had no backgroundin transportation systems, and working hard on more than one occasion to ensure that Ihad the necessary funding and support to continue the dissertation research. Also, thanksto my committee members, Prof. Fred Moavenzadeh and Prof. Richard de Neufville, whohave maintained interest in the research and provided excellent feedback on multipleoccasions; the final product is stronger due to their help. Thanks also to Prof. Ken Oye,who served on the committee and helped shape the research during the early stages.Thanks are also due to the people and organizations that have provided funding supportduring the research and writing activities for this dissertation. Thanks to the Malaysiaand Portugal programs for the generous provision of funding. Also, special thanks to theLean Aerospace Initiative (LAI) for providing financial support and an academic researchcommunity on short notice for the final two years of my research. Appreciation isextended to Prof. Debbie Nightingale and Kirk Bozdogan at LAI for their personalsupport and encouragement for this research and the opportunities that they provided.A huge debt of gratitude is extended to the many people who directly helped methroughout the different phases of the research. Without their help the research wouldnot have been possible.In the course of building the transportation demand model for the Houston case study,thanks to Chris van Slyke and Ranga Kandalam at the Houston-Galveston Area Councilmetropolitan planning organization for providing the network, travel demand data andmultiple consultations concerning the model on short notice. Thanks to Lisa Sweeney atthe MIT Rotch Library for helping translate the GIS data into a form usable for mypurposes; her patience and perseverance in working with me given my lack of GISexperience was admirable. Thanks to Joan Walker at Boston University for earlyconsultations on traffic demand modeling packages; without those valuable conversationshoming in on the use of the Transcad modeling package would have taken much longer.A simple thank you does not justify the time and effort due to Mikel Murga at MIT. His7

  • Page 8 and 9: continual guidance while I learned
  • Page 11 and 12: TABLE OF CONTENTSAcknowledgements..
  • Page 13 and 14: TABLE OF TABLESTable 2-1 Overview o
  • Page 15 and 16: TABLE OF FIGURESFigure 1-1 CLIOS Re
  • Page 17 and 18: Figure 4-14 Drawings from Leonardo
  • Page 19 and 20: Figure 5-36 E(NPV) for BWB 450 with
  • Page 21 and 22: Figure 8-24 Value of time savings f
  • Page 23 and 24: 1 INTRODUCTIONComplex systems exist
  • Page 25 and 26: Figure 1-1 CLIOS Representation of
  • Page 27 and 28: the large capital investment needed
  • Page 29 and 30: evaluation process designed to anal
  • Page 31 and 32: 1.3 LIFE-CYCLE FLEXIBILITY FRAMEWOR
  • Page 33 and 34: direction more favorable to the inc
  • Page 35 and 36: Also in Chapter 3, the concept of D
  • Page 37 and 38: 1.7 REFERENCESAllen, T. et. al. (20
  • Page 39 and 40: 2 UNCERTAINTY AND FLEXIBILITYChapte
  • Page 41 and 42: interest to the Engineering Systems
  • Page 43 and 44: Uncertainty first became of interes
  • Page 45 and 46: Known unknownsFigure 2-3 Types of u
  • Page 48 and 49: 2. Modularity - Degree to which sys
  • Page 50 and 51: 2.4.1 SURVEY OF FLEXIBILITYAs in th
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    at cost reductions or cash cows tha

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    little value in waiting. However, i

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    MathematicalClassificationSimulatio

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    Mun both suggest an increased role

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    Figure 2-7 Real options in practice

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    an option, and the search for an ap

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    “Standard”Real Options“Comple

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    other links in the network. Sophist

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    that have characteristics such bein

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    Table 2-5 Summary of major points f

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    de Weck, O., R. de Neufville, M. Ch

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    Magee, C. and O. de Weck. (2002) An

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    Walton, M. (2002) Managing Uncertai

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    FindingsFigure 3-1 Research process

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    This means that activities in the l

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    Framework. The second perspective i

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    For “complex” real options in c

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    there are not as many basic options

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    In “complex” real options in co

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    may not be exercised. For example,

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    Figure 3-9 CLIOS Process (Sussman e

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    the needed tools and capabilities m

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    3.2.3 ADDRESSING TECHNICAL UNCERTAI

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    Table 3-1 Basic option archetypes (

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    therefore reluctant to spend money

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    Design Real OptionsFigure 3-13 Inte

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    • Search and information costs -

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    in system implementation immediatel

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    Design RealOptionsFigure 3-16 Integ

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    was intended to be used as a system

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    The structure of the monitoring loo

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    3.2.7 COPING WITH UNKNOWN UNKNOWNST

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    The activities in the long-term man

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    3.2.8 ENTERPRISE READINESSAs all of

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    0. EnterpriseReadinessSystem System

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    technical architectures are present

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    Sheffi, Y. (2005) The Resilient Ent

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    FindingsFigure 4-1 Case study analy

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    eakthroughs over the years. With Ch

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    complete dependence on [air]mail pa

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    Figure 4-5 Boeing 707. Figure taken

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    With large annual increases of more

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    years in business, Airbus was outse

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    Figure 4-10 Airbus A380 jumbo jet.

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    With the end of the Cold War in the

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    Figure 4-13 Traditional (a) and par

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    Figure 4-16 Early aircraft. Figure

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    superior. However, because of the d

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    challenging to actually build and f

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    Figure 4-23 Three aircraft architec

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    Because of the aircraft architectur

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    Figure 4-27 Cross section of BWB fu

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    optimized single aircraft, creates

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    and increased market share (note fa

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    4.6 REFERENCESAnderson, J. (2002) T

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    162

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    FindingsFigure 5-1 Case study analy

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    Figure 5-2 High level overview of L

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    industry and the aircraft manufactu

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    no feedback between the airlines an

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    5.2.2 AVIATION INDUSTRY SYSTEM DYNA

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    economic conditions, fare prices an

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    the airline planning process, as fu

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    profits. Increased fares tend to de

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    Figure 5-11 Airline fleet size.5.2.

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    Figure 5-12 Airframer program produ

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    As such, uncertainty in the GDP gro

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    To generate this output, it was ass

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    Historical data (all planes)Model d

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    Forecast data (all planes)Model dat

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    Probability35%30%25%20%15%10%5%0%$(

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    The BWB has also been estimated at

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    company. Instead, the absolute net

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    whether or not derivatives are impo

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    organized around the evaluation of

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    derivative to build, it can wait un

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    The value for being able to respond

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    Probability35%30%25%20%15%10%5%0%$(

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    Probability35%30%25%20%15%10%5%0%$-

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    Probability35%30%25%20%15%10%5%0%$(

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    For this choice, the challenger Pla

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    Table 5-4 Option values for two dif

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    This analysis shows the inherent be

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    Table 5-6 Summary of main results f

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    Liebeck, R. (2005) Design of Subson

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    6.1 QUALITATIVE ANALYSIS PROCESSPre

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    selected is presented. The general

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    was not enough found to be able to

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    Table 6-1 Functional activities per

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    topics. These follow-up and detaile

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    6.1.6 LIMITATIONSSeveral limitation

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    An organizational chart of Boeing i

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    shorter-term commitment to individu

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    large commercial aircraft fleet in

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    will continue to dominate in total

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    customer interface responsibilities

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    customers, AI abandoned the design

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    two different versions of financial

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    Table 6-6 Summary of interviewee vi

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    A summary of the challenges related

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    Monitor/ManageFigure 6-9 Summary of

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    tailored to the needs and paradigms

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    The major lesson learned from this

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    Harrigan, F. (2006) Integrating The

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    FindingsFigure 7-1 Case study analy

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    technologies are then introduced, w

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    • Skill Sets - With traditional i

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    • Commercial Fleet ManagementEmer

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    un parallel to general purpose lane

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    access to the HOT lane are removed

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    are then reduced or eliminated duri

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    cordon around the central business

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    7.3.2.3.2 BRT lanesStrictly speakin

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    Congestion pricing systems utilize

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    SwitchCompoundresult in new capabil

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    Figure 7-11 Park and ride map of Ho

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    lane on the Katy Freeway was opened

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    1. Managed lanes as a means to dela

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    ITS technologies on managed lanes m

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    more efficient utilization on the m

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    3. Option to expand to a congestion

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    similar to the original ITS managed

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    7.8 REFERENCESBlythe, P. (2004) Roa

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    Rakha, H., A. Flintsch, K. Ahn, I.

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    FindingsFigure 8-1 Case study analy

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    Note, that as a convenience to the

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    additional traditional infrastructu

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    Figure 8-5 Four-step model.Also sho

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    Metro DowntownRail LineFigure 8-7 D

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    managed lanes and frontage road lan

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    traveler response to road pricing a

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    • General Purpose Lanes - General

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    esearch), demand growth rates help

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    Figure 8-14 Transcad model results

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    (inherent value) and perhaps increa

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    enefits. Therefore, counting the to

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    Grand Parkway(outer loop - not comp

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    Table 8-4 Summary of results for ad

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    Figure 8-17 Average peak hour speed

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    Figure 8-18 Probability distributio

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    side of town to allow for re-invest

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    Figure 8-21 Comparison of averages

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    enefits from the ITS system, which

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    to operating the managed lane as an

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    This is because 2.5 three-passenger

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    Figure 8-25 Total benefits of manag

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    In the delay option, considering IT

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    Option to Delay Capacity Expansion

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    8.4 REFERENCESBanks, J. (2002) Intr

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    At the end of the chapter, the resu

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    Figure 9-1 17 step planning process

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    FindingsFigure 9-2 Case study analy

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    Figure 9-3 Characteristics of case

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    9.2.3 INTERVIEWEE SELECTIONAs the i

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    ange of stakeholders that were of i

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    9.2.4 INTERVIEW QUESTIONSA series o

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    9.2.5 INTERVIEW DATA COLLECTIONDuri

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    affiliation, and presented in the f

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    Figure 9-6 Organizational Chart sho

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    Figure 9-8 Relationship between Tra

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    Figure 9-10 National level stakehol

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    9.3.4.1 Citizen coalitions and thin

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    several years, as shown in Table 9-

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    north of Houston and the Sam Housto

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    9.5 EXAMPLES OF FLEXIBILITY IN THE

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    Figure 9-13 Limited access HOV lane

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    scheme, instead of flat fee tolling

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    WestparkTollwayFigure 9-14 Map of H

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    Locally, interviewees were less ent

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    The following section presents an o

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    decisions being made concerning fle

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    now. A second best alternative was

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    The current strategy being pursued

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    On its western edge, the right-of-w

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    Figure 9-18 Transtar control room i

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    The next section looks at pragmatic

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    The next section looks at pragmatic

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    Monitor/ManageFigure 9-21 Summary o

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    Figure 9-22 Map of downtown Massach

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    9.9.2 UNANTICIPATED CONSEQUENCES OF

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    Two major lessons learned come from

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    Table 9-6 Summary of major lessons

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    Gulf Coast Institute. (2006) How a

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    USA Today. (2006) Foreign companies

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    The relationship of Chapter 10 to t

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    The two case studies looked at in t

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    Each of these findings is discussed

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    stakeholders, enterprise architectu

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    “Standard” RealOptionsComplexit

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    • More complex options (though no

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    Forcing Option ExerciseIn the real

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    In the design of the option, for ex

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    • responses to competitor actions

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    These examples show that for the sa

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    Another example in the ITS case stu

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    Figure 10-6 CLIOS Representation of

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    Figure 10-8 LCF Framework.Q2-2. The

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    Figure 10-9 Characteristics of case

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    The individual pieces of the LCF Fr

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    as unknown unknowns may require sig

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    Table 10-4 Summary of differences b

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    It may also not be possible to anal

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    convert the facility to a LRT line,

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    For “complex” real options, eve

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    Figure 10-11 LCF Framework.Given th

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    ight direction for creating a proce

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    Additionally, the relationship betw

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