Flexibility of infrastructure management decisions: the case of a project expansion

Abstract

Flexibility is a central element for the successful development and operation of infrastructure. In particular, it is important regarding the possibilities of modifying investment decisions through time as both the project’s internal and external conditions evolve. Therefore, flexibility opens new opportunities and allows stakeholders taking risks that may enhance the benefits derived from the operation of the system. Risky investment decisions may include, for example, the possibility of delaying the execution of a task; the possibility of abandoning the project before or after completion; or the possibility of an expansion. This paper discusses the importance of flexibility in infrastructure management and presents a model, based on a single redesign, that can be used for evaluating and implementing a mayor project expansion. At the end, two illustrative examples show the advantages of the proposed approach and the potential for the future management of large infrastructure systems.

Keywords:

• Infrastructure
• flexibility
• adaptability
• redesign
• real options
• financial assessment

Acknowledgements

This paper was partially funded by the “Research Program 2012” from the Office of the Vice-President for Research at Universidad de Los Andes (Bogota, Colombia).

Disclosure statement

No potential conflict of interest was reported by the authors.