Title: Adaptive port planning using real options

Authors: P. Taneja; W.E. Walker; H. Ligteringen; M. Van Schuylenburg

Addresses: Faculty of Civil Engineering and Geosciences, Delft University of Technology, P.O. Box 5048, 2600 GA Delft, The Netherlands. ' Faculty of Technology, Policy and Management, Delft University of Technology, Postbus 5015, 2600 GA Delft, The Netherlands. ' Faculty of Civil Engineering and Geosciences, Delft University of Technology, P.O. Box 5048, 2600 GA Delft, The Netherlands. ' Port of Rotterdam Authority, Postbus 6622, 3002 AP Rotterdam, The Netherlands

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.

DOI: 10.1504/IJEME.2011.045430

International Journal of Engineering Management and Economics, 2011 Vol.2 No.4, pp.313 - 334

Published online: 07 Feb 2012 *

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