UNCERTAINTY, FLEXIBILITY AND DESIGN: REAL-OPTIONS-BASED ASSESSMENT OF URBAN BLUE GREEN INFRASTRUCTURE

摘要

Climate change and rapid urbanization requires decision-makers to develop a long-term forward assessment on sustainable urban water management projects. This is further complicated by the difficulties of assessing sustainable design and various design scenarios or technical alternatives from an economic standpoint. A conventional valuation approach for urban water management projects, like Discounted Cash Flow (DCF) analysis, fails to incorporate uncertainties such as amount of rainfall, unit cost of water, and technological uncertainties associated with future changes in scientific domain. Such approach also fails to include the value of flexibility, which enables managers to adapt and reconfigure a system over time as uncertainty unfolds. This work describes an integrated framework to value investments in urban water management systems under uncertainty. It extends conventional DCF analysis through explicit considerations of flexibility in systems design and management. The approach incorporates flexibility as intelligent decision-making mechanisms that enable the system to avoid future downside risks (e.g. cutting potential losses by reducing initial investment in case rainfall amounts are lower than expected), and increasing opportunities for upside gains (e.g. novel water catchment technology efficiency better than expected) over a range of possible futures. The approach builds upon real options analysis technique to value flexibility, and adapts the technique to address practical considerations for the system at hand.