Measuring the Value of Designing for Uncertain Future Downward Budget Instabilities

摘要

A method is presented for understanding the behavior of space system program costs under downward annual budget pressure, with a real options analysis incorporated for determining the maximum worth of an architecture transition option to hedge against program budget uncertainty. The relationship between program schedule extension and resulting program cost growth is examined. As downward pressure is applied to a program's yearly budget, its overall length and, hence, cost increase. It is found that sets of candidate space system architectures for a given program can be in one of three stages of behavior in response to downward annual budget pressure, and expressions are derived indicating stage transition points. Each of these three stages of behavior indicates a different level of space system architecture robustness to annual budget levels and implies different recommended actions for a system designer or program manager. For the middle stage of behavior, maintaining an option to transition to a lower cost architecture would be one way of achieving robustness under downward budget pressure. Then real options are examined as a valuation method for understanding the maximum value that might be placed on the ability to switch to a lower cost architecture.