Flexibility and real options analysis in emergency medical services systems using decision rules and multi-stage stochastic programming

Sizhe Zhang and Michel-Alexandre Cardin

Transportation Research Part E: Logistics and Transportation Review, 2017, vol. 107, issue C, 120-140

Abstract: A novel approach to EMS infrastructure systems design, planning, and operations under long-term uncertainty is introduced based on multi-stage stochastic programming and decision rules, accounting for strategic flexibility (also known as real options – RO). Different from standard RO analysis, the approach mimics real-world decision-making by exercising flexibility based on conditional-go decision rules. The objective is to minimize the expected total costs over the system’s life cycle, and the outputs are the optimal initial configuration and decision rules. A flexible solution provides lower expected cost than stochastically optimal rigid solutions, especially valuable when required incident coverage rate is >95%.

Keywords: Flexibility in engineering design; Real options analysis; Emergency medical services; Multi-stage stochastic programming; Decision rules (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.tre.2017.09.003

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