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MITESD_77S10_lec21 (1)

MITESD_77S10_lec21 (1) - Lecture 21 Flexibility in...

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Flexibility in Multidisciplinary Design: Theory and Experimental Validation Michel-Alexandre Cardin, PhD Candidate Prof. Olivier de Weck ESD.77/16.888 Lecture 21
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2 Outline Introduction Flexibility in Systems Design Emphasis on “Infrastructures” Garage Case Example Experimental Research Design of Experiment Preliminary Analysis and Results Discussion
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3 Risk Categories Technical Risk Cost Risk Schedule Risk Market/Threat Change Schedule Slips Programmatic Risk
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4 Value at Risk Concept Value at Risk (VAR) recognizes fundamental reality: actual value of any design or project can only be known probabilistically Because of inevitable uncertainty in Future demands on system Future performance of technology Many other market, political factors
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Systems that Suffered Because of Unmitigated Risk 5 B-58 Hustler (1960-70) … Originally intended to fly at high altitudes and speeds to avoid Soviet fighters, the introduction of highly accurate Soviet surface-to-air missiles forced the B-58 into a low-level penetration role that severely limited its range and strategic value . This led to a brief operational career between 1960 and 1969. Iridium Constellation (1997-) Iridium went public in 1997 with an ambitious plan to use a 66-satellite constellation of low earth orbit satellites to compete with the mobile phone companies in the market for wireless communications. But for a host of reasons there were a host of regulatory, marketing and technical complications . By 1999, the company had filed Chapter 11.
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6 Value at Risk Definition Value at Risk (VAR) definition: A loss that will not be exceeded at some specified confidence level “We are p percent certain that we will not loose more than V dollars on this project” VAR easy to see on cumulative probability distribution (see next figure)
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7 VAR Cumulative Distribution Function Look at distribution of NPV of designs A, B: 90% VAR for NPVA is -$91M 90% VAR for NPVB is $102M CDF 0% 20% 40% 60% 80% 100% -400 -200 0 200 400 600 Cumulative Probability NPVA NPVB 90% VAR for NPVA 90%VAR for NPVB 10% CDF Probability
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8 VAR and Flexibility VAR is a common financial concept It stresses downside losses, risks However, designers also need to look at upside potential: “Value of Gain” Flexibility in design provides value by both: Decreasing downside risk Increasing upside potential See next figure
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