Using real option methods as a tool to determine optimal building work programs

Abstract

Long-term management of a building requires consideration of costs and benefits of the building’s operation that depend on interventions on the building elements. Each combination of interventions over time is a possible work program (WP), the one yielding the highest net benefits is the optimal WP. Much work has been done to evaluate WPs assuming that timing and type of interventions are known, whereas in reality, either timing or type might be unknown. A building manager planning an intervention in 10 years will certainly change her mind as that time approaches if new information suggests this change being beneficial. So-called real option methods (ROM) have been increasingly used to evaluate the possibility of single interventions on engineering systems considering this flexibility, and show potential to improve decision-making. Investigating the use of these ROM in the evaluation of WPs, four office building WPs with multiple interventions are evaluated with two ROM types, using a binomial tree, and a traditional method, with significant uncertainty associated with the operating costs. The results show that the ROM allow the building manager to determine better WPs than the TM, at least in some cases. Advantages and disadvantages of using ROM here are discussed.