Richard de Neufville

Staged Deployment of Communications Satellite Constellations in Low Earth Orbit

The “traditional” way of designing constellations of communications satellites in low Earth orbit is to optimize the design for a specified global capacity. This approach is based on a forecast of the expected number of users and their activity level, both of which are highly uncertain. This can lead to economic failure if the actual demand is significantly smaller than the one predicted. This paper presents an alternative flexible approach. The idea is to deploy the constellation progressively, starting with a smaller, more affordable capacity that can be increased in stages as necessary by launching additional satellites and reconfiguring the existing constellation in orbit. It is shown how to find the best reconfigurable constellations within a given design space. The approach, in effect, provides system designers and managers with real options that enable them to match the system evolution path to the actual unfolding demand scenario. A case study demonstrates significant economic benefits of the proposed approach, when applied to Low Earth Orbit (LEO) constellations of communications satellites. In the process, life cycle cost and capacity are traded against each other for a given fixed per-channel performance requirement. The benefits of the staged approach demonstrably increase, with greater levels of demand uncertainty. A generalized framework is proposed for large capacity systems facing high demand uncertainty.

LIFE CYCLE MODEL OF ALTERNATIVE FUEL VEHICLES: EMISSIONS, ENERGY, AND COST TRADE-OFFS

This paper describes a life cycle model for performing level-playing field comparisons of the emissions, costs, and energy efficiency trade-offs of alternative fuel vehicles (AFV) through the fuel production chain and over a vehicle lifetime. The model is an improvement over previous models because it includes the full life cycle of the fuels and vehicles, free of the distorting effects of taxes or differential incentives. This spreadsheet model permits rapid analyses of scenarios in plots of trade-off curves or efficiency frontiers, for a wide range of alternatives with current and future prices and levels of technology. The model is available on request. The analyses indicate that reformulated gasoline (RFG) currently has the best overall performance for its low cost, and should be the priority alternative fuel for polluted regions. Liquid fuels based on natural gas, M100 or M85, may be the next option by providing good overall performance at low cost and easy compatibility with mainstream fuel distribution systems. Longer term, electric drive vehicles using liquid hydrocarbons in fuel cells may offer large emissions and energy savings at a competitive cost. Natural gas and battery electric vehicles may prove economically feasible at reducing emissions and petroleum consumption in niches determined by the unique characteristics of those systems.

Hybrid real options valuation of risky product development projects

Managers and designers of technological systems face a common difficulty: new projects or products are inherently risky, both technologically and financially, especially given the rate of change in the high technology, deregulated economy. Consequently, they need solid methods for valuing prospective investments, so that they can justify their development strategies. Their fundamental problem is compounded by two methodological difficulties: (a) traditional net present value (discounted cash flow) evaluations are inadequate for many risky projects, and (b) the available methods for valuing these projects are limited and often impractical. This paper identifies practical solutions to this problem. Conceptually, it is crucial to focus on dynamic strategies of development, rather than on specific projects or products. Planners need to understand that they are consciously managing risk, and will do so most effectively by developing options they can exploit or abandon depending on future events. Methodologically, it is useful to combine the best of the alternative approaches to valuing risky projects, to achieve a practical and effective means of valuation. Hybrid real options valuation combines the best features of decision and options analysis. The paper describes this new approach and illustrates it with an application to a portfolio of technological developments of a major automobile company. The example demonstrates the effectiveness of the new method. Real options valuation has the further advantage that it rightfully increases the assessed value of risky projects, once we see them as options that can be abandoned in the context of a long-term development strategy. This increase is greatest for projects that are particularly risky or expensive to implement over time.

Management of multi-airport systems: A development strategy

This paper proposes a dynamic strategy for developing the multi-airport systems needed for large metropolitan regions. It is based upon two fundamental factors: the pattern of concentration of airline traffic at specific airports, impelled by the dynamics of the competition amongst airlines and airports, that sets limits on second airports; and the uncertainty of future traffic in this competitive environment, which implies financial risks for capital-intensive airport projects. Development plans should thus be strategic, making investments that insure the future, incremental, phasing modest investments according to proven opportunities, and flexible, providing the insurance to adjust easily to future situations.

Productivity and returns to scale of container ports

This is an empirical analysis of the performance of the five major container ports of the East Coast of the United States: Boston, New York-New Jersey, Philadelphia, Baltimore and Hampton Roads. The data through 1978 indicate wide disparities in the productivity of these facilities. They also suggest that container ports exhibit significant returns to scale throughout the range of observation, that is up to 15 Mt a Year. These findings indicate that a national policy of developing small ports is not economically attractive, and that specific investments should be made most carefully.

Engineering Systems Multiple-Domain Matrix: An organizing framework for modeling large-scale complex systems

The scope and complexity of engineered systems are ever-increasing as burgeoning global markets, unprecedented technological capabilities, rising consumer expectations, and ever-changing social requirements present difficult design challenges that often extend beyond the traditional engineering paradigm. These challenges require engineers and technical managers to treat the technological systems as a part of a larger whole. Existing system modeling frameworks are limited in scope for representing the information about engineering systems. This paper presents a conceptual framework and an improved modeling framework for engineering systems. Its value is that it allows engineers and managers an improved means to visually arrange information and structure discourse in a way that facilitates better systems engineering. It augments the existing literature by providing a clear and concise framework for an engineering system, and provides a methodology for engineers to tag and organize systems information in ways that allow for better collection, storage, processing, and analysis of systems engineering data.

Low-Cost Airports for Low-Cost Airlines: Flexible Design to Manage the Risks

Airport planning is shifting from the traditional pattern -- driven by long-term point forecasts, high standards, and established clients -- to that of recognizing great forecast uncertainty, many standards and changeable clients. This is a consequence of economic deregulation of aviation and the rise of low-cost airlines. Low-cost airlines are becoming significant factors in airport planning. Their requirements differ from those of ‘legacy’ carriers. They drive the development of secondary airports and cheaper airport terminals. They catalyze ‘low-cost airports’ around the ‘legacy main airports’ built for the ‘legacy airlines’. This paper proposes a flexible design strategy to deal with the uncertainty of this dynamic. This differs significantly from traditional airport master planning. It builds flexibility into the design, to enable airports to adjust to changes in the type, needs and location of traffic. The case of Portugal illustrates the current risks, and indicates how flexible design could manage uncertainties and maximize expected value.Abstract Airport planning is shifting from the traditional pattern – driven by long-term point forecasts, high standards, and established clients – to that of recognizing great forecast uncertainty, many standards and changeable clients. This is a consequence of economic deregulation of aviation and the rise of low-cost airlines. Low-cost airlines are becoming significant factors in airport planning. Their requirements differ from those of ‘legacy’ carriers. They drive the development of secondary airports and cheaper airport terminals. They catalyze ‘low-cost airports’ around the ‘legacy main airports’ built for the ‘legacy airlines’. This paper proposes a flexible design strategy to deal with the uncertainty of this dynamic. This differs significantly from traditional airport master planning. It builds flexibility into the design, to enable airports to adjust to changes in the type, needs and location of traffic. The case of Portugal illustrates the current risks, and indicates how flexible design could manage uncertainties and maximize expected value.

Research agenda for an integrated approach to infrastructure planning, design and management

Building on broad discussions between many universities, this paper presents a research agenda based on a holistic, comprehensive view of the issues. It proposes that our infrastructure is a system of systems involving different technical manifestations and social organisations. The implication is that we need a fundamental reconsideration of how we look at system design, away from traditional disciplinary considerations and toward a multi-domain, multi-disciplinary effort. To this end, it proposes an agenda of: comparative analyses across infrastructures and political structures, that would identify commonalities and larger lessons; creation of integrated socio-technical models that usefully describe the interactions between the technical infrastructure and its social context; methodological efforts, aimed largely at capturing the network characteristics, both technical and social, of the infrastructure system of systems; explicit testing and evaluation of the research through programs of collaboration with practitioners and governmental organisations.

Empirical Demonstration that Expected Utility Decision Analysis is Not Operational

Decision analysis can be thought of as a discipline whose objective is to help an individual who must choose one, or a few, alternatives from a set of possible actions. One of the most commonly practiced techniques used in decision analysis where future consequences of each action are not known with certainty is based upon the axiomatic theory proposed by von Neumann and Morgenstern (vNM) in 1947. The presentation of the original vNM axioms has been modified several times in order to render them more intuitively, and thus normatively, appealing (see, for example, the review by MacCrimmon and Larsson, 1979), but the essence remains the same. Any of these sets of the axioms implies that: (1) an interval-scaled utility function for outcomes, dependent only on the outcome levels, exists; and (2) actions with specified probability distributions can be ranked by the expectations of the associated vNM utilities. Thus, the theory is also known as expected utility theory, and one can speak of the expected utility decision analysis (EUDA).

The baggage system at Denver: prospects and lessons

This article discusses the fundamental design difficulties of the fully automated baggage system originally planned for the New Denver Airport, and their implications for airport and airline management. Theory, industrial experience, and the reality at Denver emphasize the difficulty of achieving acceptable standards of performance when novel, complex systems are operating near capacity. United Airlines will thus make the Denver system ‘work’ by drastically reducing its complexity and performance. Automated baggage systems are risky. Airlines and airports considering their use should assess their design cautiously and far in advance, and install redundant, supplemental systems from the start.