Real Options by Spreadsheet: Parking Garage Case Example

Abstract

This case study shows how designers of infrastructure systems can evaluate flexibility in engineering systems in fairly simple ways. Specifically, it illustrates a spreadsheet approach to valuing “real options” in a project. The model avoids complex financial procedures, which are both inappropriate for most design issues and constitute barriers to understanding and thus achieving the substantial improvement in performance that real options enable. The spreadsheet approach uses standard procedures; is based on data available in practice; and provides graphics that explain the results intuitively. It should thus be readily accessible to practicing professionals responsible for engineering design and management. A practical application to the design of a parking garage demonstrates the ease of use and presentation of results of this approach.