Climate change and rapid urbanization requires a new long-term forward assessment of sustainable urban water management projects. This challenge is further complicated by difficulties of assessing sustainable designs and various design scenarios from an economic standpoint. A conventional approach for economic assessment of urban water management projects, such as Discounted Cash Flow (DCF) analysis, fails to account for uncertainties associated with rainfall intensities, thermal stresses, as well as other uncertainties associated with future changes in technological domains. Such an approach also fails to include the value of flexibility, which enables managers to adapt and reconfigure systems over time as uncertainty unfolds. This work describes an integrated framework to valuation of investments in urban water management systems under uncertainty. It extends the conventional DCF analysis through explicit considerations of flexibility in design and management or urban blue green infrastructure. The approach considers and incorporates flexibility as an intelligent decision-making mechanisms resulting in avoidance of future downside risks and increase in opportunities for upside gains over a range of possible futures. Kent Ridge catchment in Singapore was chosen to assess and demonstrate the value of extension of a standard drainage canal system with flexible deployment of urban blue green infrastructure. Results show that integrating uncertainty and flexibility explicitly into the decision-making process can reduce initial capital expenditure, improve value for investment, and enable decision-makers to learn more about system requirements during the lifetime of the project.
Babovic, Vladan, "Uncertainty, Flexibility And Design: Real-Options-Based Assessment Of Urban Blue Green Infrastructure" (2014). CUNY Academic Works.