title: Valuing flexibilities in the design of urban water management systems.
abstract: 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 designs and various design scenarios 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 other uncertainties associated with future changes in technological domains. Such approach also fails to include the value of flexibility, which enables managers to adapt and reconfigure systems over time as uncertainty unfolds. This work describes an integrated framework to value investments in urban water management systems under uncertainty. It also extends the conventional DCF analysis through explicit considerations of flexibility in systems design and management. The approach incorporates flexibility as intelligent decision-making mechanisms that enable systems to avoid future downside risks and increase opportunities for upside gains over a range of possible futures. A water catchment area in Singapore was chosen to assess the value of a flexible extension of standard drainage canals and a flexible deployment of a novel water catchment technology based on green roofs and porous pavements. Results show that integrating uncertainty and flexibility explicitly into the decision-making process can reduce initial capital expenditure, improve value for investment, and enable decision-makers to learn more about system requirements during the lifetime of the project.
authors.affiliation: Department of Industrial and Systems Engineering, National University of Singapore, Block E1A #06-25, 1 Engineering Drive 2, Singapore 117576, Singapore.
authors.forename: Yinghan
authors.initials: Y
authors.lastname: Deng
authors.forename: Michel-Alexandre
authors.initials: MA
authors.lastname: Cardin
authors.forename: Vladan
authors.initials: V
authors.lastname: Babovic
authors.forename: Deepak
authors.initials: D
authors.lastname: Santhanakrishnan
authors.forename: Petra
authors.initials: P
authors.lastname: Schmitter
authors.forename: Ali
authors.initials: A
authors.lastname: Meshgi
mesh_terms: D003247:Conservation of Natural Resources; D055868:Floods; D008962:Models, Theoretical; D011891:Rain; D012846:Singapore; D035501:Uncertainty; D014507:Urbanization; D014881:Water Supply / Q000191:economics
keywords: Engineering system design and evaluation; Real options analysis; Urban water management systems