"Complex" Real Options - Title Page - MIT
the needed tools and capabilities may vary as a function of the type of uncertainty presentin the system. Once the sources of uncertainty have been identified and understood, adecision on whether flexibility is the appropriate strategy for addressing the uncertaintyshould be made, shown in the third step. Other strategies for addressing uncertaintyexist, such as robustness or uncertainty management (de Neufville 2004), and may bemore appropriate for the specific system of concern. Step four examines if the system ascurrently envisioned is capable of supporting flexibility. If not, step five addresseswhether the system could be modified to support flexibility. For example, in thegovernment arena, program managers or bureaucracies may not have the authority or thelegal standing to make decisions regarding a change to the system without explicitauthorization from higher up in the bureaucracy or Congress (Wilson 1989). If thesystem is currently compatible with flexibility, or if it is felt that the system can bedesigned to support flexibility, then the type of flexibility that would be of most useshould be chosen, as shown in step six. The appropriate choice of flexibility woulddepend on the type of uncertainty found in the system and the preferred strategy foraddressing the uncertainty. It is likely that step six can not be completed until later in thedesign process.Figure 3-11 shows how the decision process for using the LCF Framework fits into theCLIOS Process.The next section examines the steps in the LCF Framework that address uncertainty.94
Figure 3-11 Integration of decision to use flexibility and CLIOS Process.Decision process entered after considering Steps 5 and 8 in the CLIOS Process95
ACKNOWLEDGEMENTSThis dissertation i
students. I am sure I am missing pe
6.7 Enterprise and Institutional Ch
Table 8-8 Summary of existing mode
Figure 3-17 System management loop
Figure 5-13 Historical world annual
Figure 7-19 Decision path for ITS m
Figure 10-3 Summary of differences
1. A large commercial aircraft maki
made to the system are often not on
From the MIT Engineering Systems Di
enterprise, the enterprise itself m
system capable of coping with uncer
Ch. 2Ch. 3Ch. 4Ch. 7Ch. 5Ch. 8Ch. 6
applicability of the framework. Fin
Myers, S. (1977) Determinants of Ca
FindingsFigure 2-1 Research process
• Difficult to predict future beh
shifting their body weight) to the
Figure 4-19 Semi-monocoque construc
With a bi-wing (or tri-wing) constr
Figure 4-24 Loads and lifts generat
Figure 4-25 747-8, showing both loc
Additional benefits of the BWB arch
4.4.1 BWB OPTION DECISION PATHSFor
lower costs, higher scales of econo
Miller, B. (2005) A Generalized Rea
5 VALUE OF FLEXIBILITY IN BLENDED W
This chapter is composed of three m
this research were deemed necessary
For clarity of discussion, a high l
model, a better understanding of co
An overview of each of these subsys
important and may make inroads into
Figure 5-9 Airline finances and pro
Figure 5-10 Airline profitability,
Product design is based on a trade-
The airframe manufacturer productio
$70Inflation Adjusted Crude OilPric
5.2.5 MODEL VALIDATIONThe system dy
Forecast data (all planes)Model dat
5.3.1 INHERENT BENEFITSBWB technica
minor differences between aircraft
The remainder of this section looks
derivative depends on corporate str
Table 5-1 Number of derivatives lik
LowFuelCosts35%30%HighFuelCostsProb
The results presented can be interp
Compared to the Boeing 787, the dev
than a European option, because of
In the opposite case where the BWB
Because of the consequences of exer
35%30%Probability25%20%15%10%5%0%$-
BWB does not seem to offer advantag
type plane, relative to conventiona
5.4 REFERENCESAirbus. (2006) Annual
6 CHALLENGES OF FLEXIBILITY IN BLEN
FindingsFigure 6-1 Case study analy
Figure 6-2 Characteristics of case
6.1.3 INTERVIEWEE SELECTIONAs the i
Table 6-2 ITS case study organizati
about flexibility, i.e. is it a goo
2. If flexibility is used, can you
case with BCA, which has embraced a
primarily through military and NASA
Figure 6-7 Delivery and market fore
to meet rising demand, the overall
Another option widespread in the ai
design, evaluate or manage flexibil
Interviewee views on flexibility ce
and evaluations are based around th
operating and maintenance costs by
when fuel costs increased substanti
options, such as cross-program deri
6.9 REFERENCESAirbus. (2007) Produc
7 FLEXIBILITY IN HOUSTON GROUNDTRAN
Figure 7-2 Characteristics of case
cases can be added to existing or n
7.2.2 STANDARD ITS TECHNOLOGIES AND
• increased opportunities for pri
for Inherently Low Emitting Vehicle
Marker 2005). This type of cross fu
Figure 7-4 Plastic pylon separated
ecause the network of sensors can t
operating conditions. Additional ro
DSRC based system would require a l
Houston has already deployed one of
Figure 7-13 Transit center location
Figure 7-15 Houston’s managed lan
as HOT or TOT lanes. This can be es
BuildtraditionalinfrastructureDelay
HOT / BRTlaneNon-flexibleTOT / BRTl
BuildtraditionalinfrastructureDelay
or improved safety functions could
Haning, C. and W. McFarland. (1963)
8 VALUE OF FLEXIBILITY IN HOUSTON G
attempt was made to completely repr
Figure 8-4 Quantitative analysis pr
8.2.1.1 Travel Demand ModelingThe t
ange of traffic analysis studies to
I-10 KatyFreewayI-610(innerloop)Bel
5 lanesFigure 8-10 Example of satel
Beltway 8(secondary loop)I-610 (inn
8.2.2.5 Major Modeling AssumptionsD
from a public agency that is intere
funding improvements that would pre
This is because of the low-cost of
From the analysis above, with the d
Figure 8-16 Addition of two general
capabilities are typically deployab
Table 8-5 Benefit-Cost Ratios for K
35%30%25%Probability20%15%10%5%0%$(
Figure 8-20 NPV density function, w
Table 8-6 Summary of flexibility to
Figure 8-23 Comparison of ITS/delay
vehicles would continue to gain fre
Figure 8-24 Value of time savings f
This illustrates the importance of
Table 8-10 Summary of ITS case stud
Similar to the above discussion of
9 CHALLENGES OF FLEXIBILITY IN HOUS
new challenges as well as increase
9.2 QUALITATIVE ANALYSIS PROCESSPre
The qualitative research methodolog
to be able to answer the research q
Table 9-1 Functional activities per
USDOT, Volpe Center, Officeof Syste
3. If flexibility is used, can you
• Increased data sources - The no
importance that Harris County plays
Figure 9-7 H-GAC area of responsibi
Figure 9-9 State level stakeholders
9.3.2.3 State Legislators and Gover
met with business interests before
The resulting plan forecasted more
Discussions with interviewees with
Currently, the cross section of the
Also of interest is another part of
y the Southern Pacific Railroad. In
9.6 PROCESSES FOR IDENTIFYING, DESI
The federal level interviewee conti
may not be tied to a physical proje
During the interview process, sever
Figure 9-15 Katy Freeway configurat
Monitor/ManageFigure 9-16 Summary o
company on a schedule to complete t
interviewees commented on the ongoi
facilities has created a lack of wi
eversible HOV lanes as a safety pre
the real option and the decision to
• Mechanism for creating pressure
9.9.2.2 Uncertainty as a Result of
option purchase price. This was bec
9.10 REFERENCESABC7. (2004) Chicago
Judd, D. and T. Swanstrom. (2004) C
10 FINDINGS AND CONCLUSIONSChapter
concerns the use of real options
Table 10-1 Summary of major researc
to a system. Rather, these options
future option exercise can prevent
Q1-2. The case studies provided a d
Currently, the Silver Line right-of
technical system as well as the soc
In the ITS case study, the transpor
system that the technical system is
option exercise unlikely (building
some future date. This type of wast
DesignPhaseEvaluationPhaseManagemen
ITS capabilities used to create the
technical and social components of
incorporated directly into the mode
As defined in Section 2.6, the diff
In the BWB case study, an enterpris
For “standard” real options it
“Standard” real options are des
From the research it was found that
d. Evaluating the option with quant
need for the system is, while simul
10.7 REFERENCESClemons, E. and B. G
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