Adaptive port planning using real options

P. Taneja, W.E. Walker, H. Ligteringen and M. Van Schuylenburg

International Journal of Engineering Management and Economics, 2011, vol. 2, issue 4, 313-334

Abstract: The present volatile environment demands new ways of thinking and new tools for project planning, appraisal, and investment decisions for large scale port infrastructures. This paper proposes real options-based adaptive port planning which provides a framework for the planner to first identify critical uncertainties in the system and then, to examine, evaluate, and incorporate flexible options for handling these uncertainties. It includes a method for project evaluation, which enables the planner to make a trade-off between the value of incorporating flexibility and the cost of doing so, commonly termed real options analysis (ROA). The paper applies ROA to two cases in the port sector involving well known uncertainties, and demonstrates that in the face of uncertainty, a flexible option enhances the value of a project.

Keywords: port investment; real options; container ports; Monte Carlo simulation; flexibility; adaptability; probabilistic design; adaptive planning; port planning; port infrastructures; uncertainty; project evaluation. (search for similar items in EconPapers)
Date: 2011
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