A practical method for incorporating Real Options analysis into US federal benefit-cost analysis procedures
Name
244635823-MIT.pdf
Description
Full printable version
Size
36.98 MB
Format
Adobe PDF
Checksum (MD5)
06c9b1eb80de71d0cb95a91fba9618cc
Author(s)
Rivey, Darren
Advisor(s)
Richard de Neufville.
Alternative Title
Practical method for incorporating RO analysis into United States federal BCA procedures
Date Issued
2007
Publisher
Massachusetts Institute of Technology
Abstract
This research identifies how Real Options (RO) thinking might acceptably and effectively complement the current mandates for Benefit-Cost Analysis (BCA) defined by the Office of Management and Budget (OMB) in Circular A-94. The research examines opportunities for improving economic analysis using mandated rules for a large complex system, highlights where improvements can be made with RO thinking, and proposes a framework that can be optionally and generically applied to mandated decisionmaking guidelines. The framework relies on a simple spreadsheet analysis that is augmented with Monte-Carlo simulation. The proposed approach complements existing practices and should be easy to integrate with current tools, procedures, staff, and resources.This approach builds upon a careful analysis of Federal mandates for benefit-cost analyses, the implementing directions of the OMB, and the way these guidelines are followed by practitioners who have to deal with the particularities that exist in the field. The current practice was determined by examining several case studies of work for the Federal Aviation Administration (FAA) and through discussions with FAA officials knowledgeable about the BCA methods in practice. The proposed approach with FAA Airport Benefit-Cost Analysis Guidelines was applied to a Hypothetical Project for illustrative purposes.
Description
Thesis (S.M.)--Massachusetts Institute of Technology, System Design and Management Program, 2007.
Includes bibliographical references (p. 77-83).
Subjects
System Design and Management Program.
MIT Department
System Design and Management Program.
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