A real options-based approach to designing for changing user populations of long-lifetime products

Gopal Nadadur, Christopher Garneau, Charlotte Marr De Vries, Matthew B. Parkinson

Research output: Chapter in Book/Report/Conference proceedingConference contribution

6 Citations (Scopus)

Abstract

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.

Original languageEnglish (US)
Title of host publicationASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011
Pages557-565
Number of pages9
DOIs
StatePublished - Dec 1 2011
EventASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011 - Washington, DC, United States
Duration: Aug 28 2011Aug 31 2011

Publication series

NameProceedings of the ASME Design Engineering Technical Conference
Volume9

Other

OtherASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011
CountryUnited States
CityWashington, DC
Period8/28/118/31/11

Fingerprint

Real Options
Cabs (truck)
Anthropometry
Trucks
Lifetime
Seats
Scenarios
Decision making
Forecast
Aircraft
Uncertainty
Black-Scholes Model
Obesity
Valuation
Design Process
Percentage
Trends
Decision Making
Model-based
Robustness

All Science Journal Classification (ASJC) codes

  • Modeling and Simulation
  • Mechanical Engineering
  • Computer Science Applications
  • Computer Graphics and Computer-Aided Design

Cite this

Nadadur, G., Garneau, C., De Vries, C. M., & Parkinson, M. B. (2011). A real options-based approach to designing for changing user populations of long-lifetime products. In ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011 (pp. 557-565). (Proceedings of the ASME Design Engineering Technical Conference; Vol. 9). https://doi.org/10.1115/DETC2011-48712
Nadadur, Gopal ; Garneau, Christopher ; De Vries, Charlotte Marr ; Parkinson, Matthew B. / A real options-based approach to designing for changing user populations of long-lifetime products. ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011. 2011. pp. 557-565 (Proceedings of the ASME Design Engineering Technical Conference).
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Nadadur, G, Garneau, C, De Vries, CM & Parkinson, MB 2011, A real options-based approach to designing for changing user populations of long-lifetime products. in ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011. Proceedings of the ASME Design Engineering Technical Conference, vol. 9, pp. 557-565, ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011, Washington, DC, United States, 8/28/11. https://doi.org/10.1115/DETC2011-48712

A real options-based approach to designing for changing user populations of long-lifetime products. / Nadadur, Gopal; Garneau, Christopher; De Vries, Charlotte Marr; Parkinson, Matthew B.

ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011. 2011. p. 557-565 (Proceedings of the ASME Design Engineering Technical Conference; Vol. 9).

Research output: Chapter in Book/Report/Conference proceedingConference contribution

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Nadadur G, Garneau C, De Vries CM, Parkinson MB. A real options-based approach to designing for changing user populations of long-lifetime products. In ASME 2011 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2011. 2011. p. 557-565. (Proceedings of the ASME Design Engineering Technical Conference). https://doi.org/10.1115/DETC2011-48712