Designing capital-intensive systems with architectural and operational flexibility using a screening model

Abstract

Development of capital intensive systems, such as offshore oil platforms or other industrial infrastructure, generally requires a significant amount of capital investment under various resource, technical, and market uncertainties. It is a very challenging task for development co-owners or joint ventures because important decisions, such as system architectures, have to be made while uncertainty remains high. This paper develops a screening model and a simulation framework to quickly explore the design space for complex engineering systems under uncertainty allowing promising strategies or architectures to be identified. Flexibility in systems' design and operation is proposed as a proactive means to enable systems to adapt to future uncertainty. Architectural and operational flexibility can improve systems' lifecycle value by mitigating downside risks and capturing upside opportunities. In order to effectively explore different flexible strategies addressing a view of uncertainty which changes with time, a computational framework based on Monte Carlo simulation is proposed in this paper. This framework is applied to study flexible development strategies for a representative offshore petroleum project. The complexity of this problem comes from multi-domain uncertainties, large architectural design space, and structure of flexibility decision rules. The results demonstrate that architectural and operational flexibility can significantly improve projects' Expected Net Present Value (ENPV), reduce downside risks, and improve upside gains, compared to adopting an inflexible strategy appropriate to the view of uncertainty at the start of the project. In this particular case study, the most flexible strategy improves ENPV by 85% over an inflexible base case. © 2009 ICST Institute for Computer Sciences, Social Informatics and Telecommunications Engineering.