FLEXIBILITY IN DESIGN - Title Page - MIT

de Neufville + Scholtes D R A F T September 30, 2009the skill, experience and commitment of the staff; the success of marketing campaigns and thespeed of diffusion of use; etc.As this chapter shows, the bottom line is that we cannot count on accurately forecastingthe long-term benefits and costs of technological systems. In general, the future value of theseinvestments is highly uncertain. This is the reality that confronts designers, analysts, clients,investors, managers, users and regulators.Standard methods are inadequateUnfortunately, our methods of designing do not deal with the reality of rapid change. Standardpractice proceeds from a set of deterministic objectives and constraints that define what thedesigners must accomplish. These mandates go by various names: systems engineers think ofthem as “requirements”, architects refer to “programs”, property developers and others think interms of “master plans”. By whatever name, these restrictions channel designers toward a fixed,static view of the problem. In the case of the Iridium communications satellites, for example, thedesigners sized the fleet for worldwide use assuming 1 million customers in the first year ofoperation; they made no provision for the possibility of far fewer customers or a narrower servicearea. Likewise, in the extractive industries it is usual to base design on an assumed long-termprice of the commodity, despite everyone’s experience that the prices of raw materials fluctuatewidely. In practice, we “design to specification” when we should “design for variation”.Our standard procedures for selecting designs likewise do not generally deal with thepossibility of change. The standard methods for ranking possible choices refer to the “cash flow”of an investment, that is, to the stream of benefits and costs in each period of the project thatwould occur if the conditions assumed were to exist. In practice, the evaluation process usuallydiscounts this unique flow and brings it back to a reference time to create measures such as theNet Present Value (NPV), the Internal Rate of Return (IRR) or the Benefit/Cost Ratio (seeAppendix B for details). None of these approaches recognizes two routine features of largeprojects:• The assumed conditions, such as demand and price, change as the project is nearingcompletion, as discussed earlier; and• Management might – as it generally does – eventually decide to change the system inresponse to new circumstances.Therefore, the initial business case analysis used to select design solutions often falls apart lateron in the project. Consequently, the path that the project has chosen may be less than optimal.The standard methods do routinely explore how new circumstances might change futurebenefits and costs. This is good, but standard analysis does not go far enough. Analysts calculatehow different important factors – such as prices, market share, and rate of innovation – affect thecash flows and overall value of the projects configured to satisfy stated requirements. ThePart 1: Chapters 1 to 3 Page 7 of 69