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VAR and Flexibility• VAR is a common financial concept• It stresses downside losses, risks• However, designers also need to look atupside potential: “Value of Gain”• Flexible design provides value by both:– Decreasing downside risk– Increasing upside potential– See next figureGarage Case, etc de Neufville, Scholtes and Wang Slide 7 of 23Sources of value for flexibilityCut downside ; Expand UpsideCumulative ProbabilityExpand upside potentialOriginaldistributionDistribution withflexibilityCut downside risksValueGarage Case, etc de Neufville, Scholtes and Wang Slide 8 of 234