Flexible Design of Commercial Systems Under Market Uncertainty: Framework and Application

A procedural framework is presented for the design optimization of modular commercial systems that are required to respond to changing market conditions. The basic premise is that commercial systems optimization aims directly at stakeholder value maximization. When stakeholder value is a quantifiable function of design variables and stochastic state variables, it can be maximized by maximizing expected value estimates plus the value from flexibility that stems from a design solution. We propose a multi-disciplinary framework, in which standard options valuation theory is used to model and valuate the flexibility embedded in a design solution, and external optimization techniques are used to determine the design of greatest value. We argue that the proposed framework is more intuitive and practical than equivalent stochastic optimization models. We demonstrate the framework in the preliminary design of the new Exploration Headquarters for British Petroleum in Aberdeen, Scotland. Preliminary results indicate that if flexibility is explicitly included in value-driven optimization, the resulting designs are quite dierent.