Systems engineering decision process: options are available

Abstract

The development phase of systems engineering is one of the most critical phases in the entire life of a project because it is at that point the majority of the project’s technology and committed costs are determined (Buede 2000). Yet, the decision tools available to assist systems engineers in choosing between technology alternatives at this phase are extremely limited, consisting mainly of the financial models of net present value and return on investment. Conceptually, if we view the alternatives available as a portfolio of cost, performance, and schedule options, then we can extend the financial portfolio model of Real Options Analysis (ROA) into system engineering. Such an extension is the first element of my research. However, because there is a need to extend beyond strictly the financial realm, I then introduce an advanced performance model, Technology Options Analysis (TOA), which is employed to address a system’s performance options. Technology options, while similar to financial options, use performance dimensions such as availability of current and future technologies, technology risks, and industry clock speeds (Fine 1998). The purpose of Technology Options Analysis is to provide a tool that decision makers can use to understand the value of waiting to make a technology selection until some or all of a technology’s performance uncertainty has been resolved. Finally, to create a more complete picture of the decision trade space, I combined Real Options and Technology Options into a unified algorithm that incorporates both performance and cost uncertainty into the decision making process. The aspect of schedule is beyond the scope of this dissertation and is left for future research. Applicability of the models are illustrated in the context of one case study.