Abstract
Summary This paper presents an integrated method for identifying and inserting valuable flexibility into major projects. It builds upon recent work that (1) documents how errors in estimates can bias the selection of design concepts, (2) shows how concept flexibility can improve the project performance, and (3) usefully illustrates the probability distribution of outcomes. It involves: (1) developing and evaluating a base case design, (2) exploring the outcomes this design might generate, (3) identifying opportunities for flexible design, and (4) evaluating and selecting the most valuable flexibility to incorporate into the design. It embodies a paradigmatic change in the way designers deal with uncertainty: instead of basing a design on fixed assumptions and then testing its sensitivity to risks, the approach recognizes risks in the design process and thereby develops valuable flexibility that increases the expected value of projects. A case study of an oil platform development in the Gulf of Mexico demonstrates the method.
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