FLEXIBILITY IN DESIGN - Title Page - MIT

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de Neufville + Scholtes D R A F T September 30, 2009Table 1.1: Spreadsheet for parking garage example.SpacesMoney, millionsDemand Used Revenues Costs Profits350 350 2.8 3.0 - 0.2550 500 4.0 3.0 1.0450 450 3.6 3.0 0.6Table 1.2: Comparison of value of “optimized” and flexible designs for a satellite fleet.Note that the design “optimized” for a single forecast performs poorly on average acrossthe range of possible scenarios. (Source: Hassan et al.)DesignPresent Value, MillionsExpected Maximum Minimum Fixed Cost“Optimized” 49.9 192 - 162 - 393Flexible 95.8 193 68 275Which Better? Flexible Flexible Flexible FlexiblePart 1: Chapters 1 to 3 <strong>Page</strong> 16 of 69
de Neufville + Scholtes D R A F T September 30, 2009Average Annual Crude Oil Price$120.00$100.00Price (USD)$80.00$60.00$40.00$20.00$0.001946195019541958196219661970197419781982198619901994199820022006YearsNominal Inflation Adjusted 2007Figure 1.1: Historical prices of crude oil, both in nominal and constant value dollars.Notice how the ‘trends’ have frequently changed direction substantially: constant pricesuntil 1973, a sharp run-up over the next decade, followed by a decade of dropping pricesand the more recent reversal.(Source: xxxxxxx [Need to update graph, of course.]1201001994$/BARREL806040ACTUAL1981 FORECAST19841988199219952001975 1980 1985 1990 1995 2000 2005 2010Figure 1.2: Forecasts of oil prices compared to actual prices. Notice how expert estimatesfailed to anticipate reality, even in the short run.(Source: US Department of Energy, compiled by M. Lynch)Part 1: Chapters 1 to 3 <strong>Page</strong> 17 of 69
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