Conference Paper – A More Flexible Approach to Valuing Flexibility

Title: A More Flexible Approach to Valuing Flexibility

Publication Date: 4/14/2011

Conference: 9th Annual Conference on Systems Engineering Research (CSER), Redondo Beach, CA, April 2011

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Abstract

The DOD routinely demonstrates its capability to develop phenomenal systems; however, these accomplishments are often tarnished by substantial cost and schedule over-runs. While defense policies are continually being revised to address these problems, many believe that a more fundamental source of these overruns is the lack of flexibility in the sys-tems being developed. But providing justification to invest in flexibility is a tough sell, as stakeholders struggle to quantitatively demonstrate the potential return on investment. There-fore, this paper introduces an alternative methodology for valuing the inherent ability of a system or design to accommodate change. The proposed methodology is essentially a modifi-cation of the current life cycle model and is premised on the notion that the need for capabili-ty changes in a program arise in a stochastic manner that can be incorporated into a continually updated, expected value model presented in terms of total program cost.

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