TY - GEN
T1 - A real options-based approach to designing for changing user populations of long-lifetime products
AU - Nadadur, Gopal
AU - Garneau, Christopher
AU - De Vries, Charlotte
AU - Parkinson, Matthew B.
PY - 2011
Y1 - 2011
N2 - In addition to robustness-related considerations, designers of long-lifetime products (e.g., buses, trains, freight trucks, and commercial aircraft) must also account for possible secular and demographic trends and their impacts on the ranges of anthropometry, capability, and preference of user populations. However, the uncertainty associated with forecasts of these trends complicates the decision-making process of the designer. One of the decisions to be made is whether to efficiently allocate adjustability to accommodate the required percentage of only the current user population or to allocate additional amounts of adjustability to allow for more uniformly high accommodation levels throughout the product's lifetime. Postponing this decision until later in the life of the product could be a valuable option. This paper proposes a Black Scholes model-based real options methodology for the valuation of such decision-postponement in the design process. A simplified truck cab designed in 1977 and with a lifetime of 30 years is used as a demonstrative case study. The three population change scenarios considered are: no change, changes due to a secular trend (gradually increasing obesity), and changes due to a demographic trend (gradually changing gender split). Estimates of the body dimensions (anthropometry) of user populations in these three scenarios are utilized to study the impact of certain adjustability-allocation decisions on the accommodation levels of these populations. The secular trends scenario indicates the need to embed greater-than-optimal truck cab space which, in the future, may be used for a seat designed for the more obese user population. This decision is treated as a real option and is evaluated for different levels of uncertainty associated with secular trend forecasts and for different required rates of return. Despite the limitations of the approach due to certain simplifying assumptions, it is shown to be a good basis for future research into designing for changing user populations of long-lifetime products.
AB - In addition to robustness-related considerations, designers of long-lifetime products (e.g., buses, trains, freight trucks, and commercial aircraft) must also account for possible secular and demographic trends and their impacts on the ranges of anthropometry, capability, and preference of user populations. However, the uncertainty associated with forecasts of these trends complicates the decision-making process of the designer. One of the decisions to be made is whether to efficiently allocate adjustability to accommodate the required percentage of only the current user population or to allocate additional amounts of adjustability to allow for more uniformly high accommodation levels throughout the product's lifetime. Postponing this decision until later in the life of the product could be a valuable option. This paper proposes a Black Scholes model-based real options methodology for the valuation of such decision-postponement in the design process. A simplified truck cab designed in 1977 and with a lifetime of 30 years is used as a demonstrative case study. The three population change scenarios considered are: no change, changes due to a secular trend (gradually increasing obesity), and changes due to a demographic trend (gradually changing gender split). Estimates of the body dimensions (anthropometry) of user populations in these three scenarios are utilized to study the impact of certain adjustability-allocation decisions on the accommodation levels of these populations. The secular trends scenario indicates the need to embed greater-than-optimal truck cab space which, in the future, may be used for a seat designed for the more obese user population. This decision is treated as a real option and is evaluated for different levels of uncertainty associated with secular trend forecasts and for different required rates of return. Despite the limitations of the approach due to certain simplifying assumptions, it is shown to be a good basis for future research into designing for changing user populations of long-lifetime products.
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U2 - 10.1115/DETC2011-48712
DO - 10.1115/DETC2011-48712
M3 - Conference contribution
AN - SCOPUS:84863589763
SN - 9780791854860
T3 - Proceedings of the ASME Design Engineering Technical Conference
SP - 557
EP - 565
BT - ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011
T2 - ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011
Y2 - 28 August 2011 through 31 August 2011
ER -
