Date

Lecture Topic

Slide Show

Reading

Assignment

Note: FD =
Flexibility in Design text (draft
chapters)
Readers of this draft please send comments,
criticisms, suggestions to ardent@mit.edu  Thanks
ASA =
Applied Systems Analysis text
AP = Application Portfolio exercise

Numbers
in italics refer to problems students should do on their own and
selfgrade using posted answers

Recitation Times: Tuesdays at 1;
Wednesdays at 11


Part 1: Overview of
Flexibility in Design
Teaching Objective: To understand why and how flexibility in
design increases expected value

Sept

10

Th

Paradigm Shift: Focus
on Distribution of Outcomes instead of single outcome.
Effort to "move distribution to right"
Discussion of Syllabus

Introduction
Paradigm
Shift

FD
Chapter 1;
FD
Appendix A

ESD.70 in parallel for
4 days
Uncertainty,
AP
1: Project Definition


15

Tu

Uncertainty

Uncertainty*

FD Chapter 2





Recitation

Discussion of
Previous Application Portfolios




17


Garage Case: Concepts*

Intro to Flexibility

FD
Chapter 3
Vertical
Phasing



22

Tu

Garage
Case: Details*
Flaw
of Averages*

Blossoms
Flaw video

Garage
paper
SPE
paper

Above due , AP 2




Recitation

Detailed discussion
of Garage case analysis



Part 2: Basic
Concepts for Valuation
Teaching Objective: To Establish Understanding of
basic elements needed for Valuation
Discounted Cash Flows, Alternative Valuation Measures,
Technical Efficiency; Economies of Scale; Phasing


24


DCF
and Present Value;
Measures
of Value

Present Value & DCF
Economic Evaluation

FD
Appendix B

13.3


29

Tu

Choice
of Discount
Rate*, Opportunity Cost, WACC*

Choice of Discount
Rate; WACC

FD
Appendix B
ASA 12





Recitation




Oct 
1 

Asphalt
vs. Concrete
highways; Basic System Model: production
function and Economies of Scale* 
Asphalt vs. Concrete;
Production Functions 
ASA
2 
2.4


6

Tu

Determining EoS from cost function Constrained
Optimization* and Marginal
Analysis and EoS*

Constrained Optimization; Marginal
Analysis

ASA 4

AP2 due
AP3




Recitation





8


Optimum expansion size  issues

Capacity
Expansion*

FD Appendix C

Optimal
capacity combined


13

Tu

NO CLASS (MIT FOLLOWS
MONDAY SCHEDULE)




Recitation

Work on Application Portfolios



Part 3: Forecasting and
Dynamic Modeling
Teaching Objective: Development and Use of Dynamic Forecasts
Simulation, Dynamic Models, Decision Analysis and
Dynamic Programming


15


Simulation  Appendix D 
Use
of Simulation
Antamina
Mine Example

FD Appendix D 
AP3 due
(deferred to Tuesday)


20

Tu

MidTerm
Review

Visualizing
PF etc


Optimal Capacity due




Recitation

Quiz Preparation




22


Midterm Quiz


Quiz solution



27

Tu

Decision Analysis 
Primitive Models
Decision Analysis
DA by Folding Back 
ASA 16
Babajide
paper
DA
Examples

AP4
16.10, 16.11




Recitation





29


Lattice
Model to represent uncertainty; 
Lattice
Model;
Binomial fitting.xls 
FD Chapter 4
Binomial
lattice.xls;
Best
Fit.xls 
AP5+6
combined

Nov

3

Tu

Evaluation with Lattice
Model

Lattice
Valuation*
Binomial
Tree  Options

FD Appendix E 




Recitation





5


Dynamic Programming

Dynamic
Programming*

ASA 7

7.5

Part 4:
Identification of Candidate Flexibilities
Teaching Objective: How to identify most valuable flexibilities
efficiently
Midfidelity Screening models; Extending range of
consideration


10

Tu

Lattice vs. Decision Analysis
Midfidelity Screening Models

Lattice
vs Dec. Analysis*
Screening
Models

FD
Chapter 5

AP4 due




Recitation





12


Extended range analysis;
Application

Cardin
Presentation
Yingxia
presentation

Yingxia PhD;
Lin
paper
Wilds
thesis


Part 5: Evaluation
and Choice of Preferred Alternatives
Teaching Objective:
Theory and Practice of MultiDimensional Evaluation under Uncertainty
Multidimensional
measures of distribution; selection criteria; sensitivity analysis


17

Tu

Multidimensional choice theory and practice

MultiDimensional
choice theory and practice

FD
Chapter 6

AP5+6 due




Recitation





19


Option Theory

Introduction to Options in Finance and
Real Options

AP
completion
AP
Grading Criteria

Draft of
Complete AP


24

Tu

"Real Options
Analysis"  what it is and why not

Methods
and Assumptions of RO

FD Appendix F
Borison



26


THANKSGIVING




Part 6: Implementation
Teaching Objective: Understanding Implementation Issues and Guidance on
their Resolution
Theory and Practice, illustrated by numerous examples

Dec

1

Tu

Implementation
Issues: Theory

Implementation

FD
Chapter 7

Draft AP due


3


Implementation Issues:
Cases

HCSC
Chicago;
Houston Metro
Dartmouth
Hospital; Newcastle Hospital

McConnell PhD
pages 6268; 253256; 406414



8

Tu 
Example Applications:

Hassan
Oil Field

FD Chapter 8

Final
AP due plus slide
set


10


Example Applications;
New Analytic Methods

QuispezAsin
Hybrid
Case 
Greden
,
Hassan Oil
Hassan Sat

