Introduction to Flexibility in Design

• Third element of garage case study analysis
• Previous elements: deterministic engineering design, uncertainty impact on value estimates
• Flexibility defined: ability to adjust project to actual needs according to future developments
• Key capability: adding greater capacity if demand increases
• Requires active project management, not autopilot approach
• Value delivery depends on both initial design and ongoing management

Flexible Design Implementation for Garage

• Enable addition of more capacity through:
  • Stronger structural elements (fat columns with more strength)
  • Bigger foundations to carry increased loads on soil
  • Expandable building system (precast construction)
  • Off-site building capability for easy expansion
  • Minimal garage closure during expansion periods
• Result: ability to add floors as needed

Simulation Analysis Process

• Spreadsheet analysis for four-floor configuration
• Simulated forecast with variable demand patterns (up/down fluctuations over time)
• Embedded if-statements for intelligent management decisions:
  • No capacity addition if demand not increasing
  • Add floors if demand increases and expansion valuable
• Thousands of simulations run (couple thousand in this analysis)
• Each simulation factors in expansion decisions and calculates value
• Combination analysis determines overall expected value

Optimal Design Results

• Optimal solution: 4 stories with expansion capability
• Not 6 stories (deterministic design)
• Not 5 stories (risk-averse uncertainty approach)
• 4 stories with ability to expand when needed
• Built smaller initially = lower cost than 5-6 stories
• Less downside exposure due to smaller initial investment
• Capability to expand to 5, 6, 7, or 8 stories if demand occurs

Performance Comparison Summary

• Deterministic design (6 stories): appeared to have $6 million value
• Reality: deterministic approach only achieves ~$3 million expected value due to uncertainty
• 4-story flexible design: most productive option
• Deterministic $6 million value described as "sham" - never achievable given uncertainty

Value Proposition of Flexible Design

• Lower initial cost (smaller building)
• Less possibility of loss at beginning
• Ability to expand as appropriate based on conditions
• Capture value from favorable demand scenarios
• Multi-dimensional evaluation approach needed

Multi-Dimensional Evaluation Framework

• Single number insufficient for describing distributed outcomes
• Key factors evaluated:
  • Initial investment: lower for flexible design (smaller initial build)
  • Expected value: much larger due to upside capture and downside avoidance
  • Maximum value: larger potential returns
  • Minimum value: smaller potential losses
• Flexible design superior on all four counts

Design Approach Transformation

• No technological breakthrough required
• Not more sophisticated/advanced design
• Changed problem framing approach:
  • From: designing for fixed future view
  • To: managing realistic uncertainties through flexible design
• Shifted from "mythical fairy tale future" to adaptive management
• Result: overall better solution through condition adjustment capability

Win-Win Characteristics

• Less downside risk
• More upside potential
• Lower initial cost
• Overall superior performance
• Note: uniquely favorable outcome may not always occur, but approach built for less downside/more upside