Towards an assessment of resilience in telecom infrastructure projects using real options

Journal article (2017)

Authors

Jonathan Mak University of Cambridge
Steve Cassidy BT Research Laboratories
P.J. Clarkson University of Cambridge
Affiliation
External organisation
Uncertainty Resilience Design management Large-scale engineering systems
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Published Date

2017

Language

English

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Abstract

This paper employs the concept of real options to quantitatively assess resilience. First, the definitions of resilience are distilled from literature in the fields of engineering, management and ecology to give requirements for further assessment. From this, it was found that resilience requires a system to be robust, adaptable and flexible in the face of uncertainty. The main contribution of the paper is to connect these requirements to real options valuation and demonstrate the evaluation of the robust and flexible cases through real options methods. Specifically, Least Squares Monte Carlo method is used to value each option with the robust case being the benchmark and flexibility representing upgrades to the system. This is applied to an illustrative telecommunications case and the properties of the model assessed. The results show that uncertainties on the system can be captured and valued through this method so that it can aid a decision maker to assess which technology option or investment to select for future planning.