Joshua Mcconnell

Life-cycle Flexibility: Designing, Evaluating and Managing "Complex" Real Options Joshua Mcconnell

Designing flexibility in a system with real optionsis one method for managing uncertainty. However, designing flexibility in a "complex system" is onlyone of several tasks that must be accomplished if theflexibility is to be deployable and of value. Many potential challenges exist throughout anoption?s life-cycle that makes design, evaluation, exercise and management of an option complex.?Complex real options" are composed of more than asingle or simple change or addition to a system tocreate flexibility. Rather, a complex real option islikely composed of interconnecting technological, organizational and process components. A complex realoption may be embedded in a complex system, which hastechnical and social system components and thebehaviors that go along with this. To meet the need for considering flexibility incomplex systems the concept of Life-Cycle Flexibility(LCF), or flexibility from ?cradle to grave?, isintroduced. LCF considers both physical and socialsystems and spans the entire life-cycle of an option, starting with activities to ready an enterprise forflexible systems and continues through systemmonitoring and option exercise decisions.