ANALYZING AND MANAGING FLEXIBILITY IN ENGINEERING SYSTEMS DESIGN BASED ON DECISION RULES AND STOCHASTIC PROGRAMMING: APPLICATIONS IN WASTE-TO-ENERGY SYSTEMS

Abstract

This thesis introduces an approach to analyze and manage flexibility in engineering systems design based on decision rules and stochastic programming. The approach differs from standard real options analysis (ROA) relying on dynamic programming in that it parameterizes the decision variables used to design and manage the flexible system in operations. Decision rules are based on heuristics triggering mechanisms that are used by decision makers (DMs) to determine when and how to exercise the flexibility. The approach is first introduced using a generic stochastic programming model. The model is then instantiated by applications in waste-to-energy systems as demonstration. Results show that the proposed approach recognizes the value associated to flexibility in a similar amount as standard ROA. In addition, the form of the solution provides intuitive guidelines to DMs for exercising the flexibility in operations. Furthermore, the demonstration shows that the method is suitable to analyze complex engineering systems, when multiple uncertainty sources and different flexibility strategies are considered simultaneously. Finally, a framework is developed to guide designers to apply the decision rule approach throughout the design process.