3.2.2 A More Flexible Approach to Valuing Flexibility

Abstract

AbstractThe DOD routinely demonstrates its capability to develop phenomenal systems; however, these accomplishments are often tarnished by substantial cost and schedule overruns. While defense policies are continually being revised to address these problems, many believe that a more fundamental source of these overruns is the lack of flexibility in the systems being developed. But providing justification to invest in flexibility is a tough sell, as stakeholders struggle to quantitatively demonstrate the potential return on investment. Therefore, this paper introduces an alternative methodology for valuing the inherent ability of a system or design to accommodate change. The proposed methodology is essentially a modification of the current life cycle model and is premised on the notion that the need for capability changes in a program arise in a stochastic manner that can be incorporated into a continually updated, expected value model presented in terms of total program cost.