Critical Life-Cycle Decision

Making in Complex
Engineering Projects for
Engineering Economy
Courses
IE 305
K. Jo Min
4/22/16 (4/11, 13, 15 FK, 18, 20)

Concluding Remarks for 4/11-4/22/16

NPV is efficient and effective if the project is deterministic.
NPV, however, does not answer questions such as:
-By when should a decision maker take an action?
-What is the window of opportunity for such an action?
For stochastic projects, often there exist underlying
stochastic processes. In such case, the aforementioned
optimal timing questions may be answered.

Concluding Remarks for 4/11-4/22/16

1. Volatility like many other items and issues has both
positive and negative (e.g., lean) perspectives.
2. For many project decisions under uncertainty, volatility
extends life.
3. In practice, when there is no visibility (high volatility),
then the decision may be not to make a decision (i.e., the
option to delay is exercised)
a quintessential stochastic optimal control problem.

Future Endeavors...
Project Design (cf. product design axiomatic, etc.).

Post Optimality Analysis How best to follow up

decisions?
Ilities such as flexibility, adaptability, versatility, etc.: What
are their worth?
- Do you still want Flexible Manufacturing System if the
worth of flexibility is not that much?

References...

1. Dixit, A. K. and Pindyck, R. S. (1994) Investment under uncertainty. Princeton University Press, Princeton, NJ.
2. Min, K.J., J. Jackman, and J. Chan, Visual Models for Abstract Concepts towards Better Learning Outcomes and Self-Efficacy,
Educational Research and Methods Division, ASEE Proceedings, Indianapolis, Indiana, June 2014.
3. Min, K. J., C. Lou, and C. Wang, An Exit and Entry Study of Renewable Power Producers: A Real Options Approach, The Engineering
Economist, Vol. 57, pp. 55-75, 2012.
4. Shi, W. and K. J. Min, Remanufacturing Decisions and Implications under Material Cost Uncertainty, International Journal of Production
Research Special Issue on Green Manufacturing, Vol. 53, pp. 6421-6435, 2015.
5. Shi, W. and K. J. Min, Product Remanufacturing: A Real Options Approach, IEEE Transactions on Engineering Management, Vol. 61, pp.
237-250, 2014.
6. Shi, W. and K. J. Min, Product Remanufacturing and Replacement Decisions Under Operations and Maintenance Cost Uncertainties,
The Engineering Economist - Special Issue on Engineering Economics in Reliability, Replacement and Maintenance, Part 1, Vol. 59, pp. 154174, 2014.
7. Shi, W., Tianke Feng, and K. J. Min, Remanufacturing Decision and Sustainability Under Product Life Cycle Uncertainty, accepted and to
appear in The Engineering Economist, 2014.
8. Wang, C. and K. J. Min, Electric Power Plant Valuation Based on Day-Ahead Spark Spreads, The Engineering Economist, Vol. 58, pp.
157-178, 2013.
9. Min, K.J., J. Jackman, and M. Zugg, Critical Life-Cycle Decision Making for Projects under Uncertainty, Engineering Economy Division,
accepted and to appear in ASEE Proceedings, Indianapolis, Indiana, June 2016.

More Agenda Items Today

Advertisement: Focus Groups

Self-Efficacy Survey
&
Quiz (Mandatory)

Focus Groups
1. Please support Michelles efforts to hold one or two
focus group meetings.

2. You could respond to Michelles e-mail invitation or you

could propose to Michelle when you would be available.

3. In addition to helping us to advance in this research, it

could directly help us in the n-th stage fund-raising:
Currently, NSF REU & IMSE URA (possibly as a piece
of supporting evidence).

To be continued in spring 2017,

in IE 405X

Any questions?