Flexible Infrastructure Design: A Real Options Reasoning Approach to Navigating Uncertainty in Large-Scale Projects

Abstract

This study addresses the imperative of enhancing design flexibility in large-scale infrastructure projects to effectively navigate emerging uncertainties. Current appraisal methods often prioritize risk mitigation over uncertainty management, which hinders the implementation of flexible designs. Instead, this research explores the integration of design flexibility through real options reasoning (ROR) to create flexible infrastructures. As a result, a conceptual framework is proposed that draws from contemporary industrial practices such as modularization and project safeguards. Modularization, grounded in the alignment of functions and components, bolsters flexibility. Project safeguards, operationalized as passive or active measures, embed options in project outcomes. A proposed method emerges that synthesizes real options, modularization, and project safeguards into four guiding steps and nine helpful heuristics. These steps, enriched by heuristics, offer a structured approach to grasp, strategize, and implement design flexibility, transforming it from theory to impactful project management. Case-based and numerical validation was conducted to validate the proposed method. The proposed approach is illustrated through a case study of Heathrow Airport’s £14 billion expansion. The research implications include the exploration of improved appraisal methods for large infrastructure projects, the advancement of ROR and application of heuristics in engineering management, and additional investigation into the integration of modularization and safeguards to enhance design flexibility in uncertain environments. This study presents a new methodological approach that offers a structured framework for effectively communicating the advantages of design flexibility in managing uncertainty during the appraisal process of large-scale infrastructure projects. The approach empowers project leaders to tackle uncertainties intrinsic to large-scale projects. It fosters design flexibility’s benefits, guides project selection aligned with growth goals, and manages uncertainties by conceptualizing projects as sequenced steps. This method comprises four sequential steps, each pivotal for enhancing design flexibility. It begins by translating strategic needs into tangible options, enhancing adaptive decision-making. The subsequent step involves selecting optimal product types and modularization options to fortify flexibility. Operationalizing risk, modularization, and safeguards in the third step cements flexibility into project architecture. The final step involves cost–benefit analysis, aiding informed investment decisions. These steps, enriched by simple heuristics, offer a structured approach to grasp, strategize, and implement design flexibility, transforming it to impactful project management. Ultimately, this approach guides projects toward a more adaptive future. The proposed approach is ideal for intuitive executive decision-making through practical shortcuts, particularly when analytical modeling faces limitations.