1. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 1 of 17 Engineering Systems Analysis for Design Introduction

2. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 2 of 17 GOOD MORNING BON JOUR ! GUTEN MORGEN ! O HAYO GOZAIMASU! SELAMAT DATANG! G’DAY, MATES ! BUENOS DIAS! NI HAO MA ! BOA DIA !

3. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 3 of 17 Welcome! l It is a pleasure to be with you l We will be covering much new material l Looking forward to learning with you l Hope to make some long-term friends

4. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 4 of 17 Introduction of Teachers l Richard de Neufville –Prof. of Engineering Systems and of Civil and Environmental Engineering –Course Organizer l Dr. Frank Field –Associate Director for Education, Technology and Policy Program; Principal Research Engineer l Tao Wang –Teaching Assistant, for 3rd time -- also web master –Dissertation writing doctoral student in Technology, Policy and Management

5. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 5 of 17 Introduction of Students l Please fill out sign-up sheets being passed around l Please indicate if you are –taking course –shopping around

6. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 6 of 17 ENGINEERING SYSTEMS ANALYSIS FOR DESIGN l Emphasis –Use of Analysis to Configure Engineering Systems for best long- term performance –“Real Options”, that is, physical things that system managers and designers can do to add flexibility –To avoid bad outcomes (acts like insurance) –To seize opportunities for improvement –In general, to maximize expected performance in uncertain world l MIT School-Wide Elective, with many numbers: ESD 71, 1.146, 2.192, 3.56, 13.62, 16.861, 22.821 Choose what meets your course requirements

7. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 7 of 17 Logic of the Course l Engineering Systems exist in Uncertainty –Loads -- Physical and Market Size –Technical -- New Developments –Organizational -- New Regulations, Competitors l Engineering Systems Need to Adapt –Take advantage of Opportunities –Avoid Hazards, Risks l Flexibility is Essential Part of Design –How do we value flexibility? –How much is enough? l “Real Options” provides Answers

8. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 8 of 17 New Material l Brand-new Approach to Engineering Design –Use of “Real Options” l Revolutionary possibilities –Explicit consideration of flexibility, not possible earlier => savings (or increase in performance) of order of 30% ! l Approach derived from “Options Theory” –Nobel Prize-winning development in finance l Modified to fit engineering realities –Lack of historical data –Need for Approximate Procedures l Idea is to develop coherent road-map for design

9. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 9 of 17 Structure of Material l 1. Engineering Systems Analysis -- Certainty l 2. ESA for Uncertainty l Part 1 Integrated Perspective on Basics –Evaluation over time -- Major projects –Concepts for Modeling Systems –Insights from Constrained Optimization -- Linear Programming, Shadow prices, opportunity costs l Part 2 Systems Analysis under Uncertainty –Decision and Utility Analysis –Real Options Analysis –Examples of Actual Applications –To help you choose which method works best for you

10. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 10 of 17 Approach to Learning l Part 1 -- Fundamentals –Assumes that all participants have had some of the material somewhere –Aims to provide a coherent view –Moves fairly rapidly l Part 2 – Crux of Course –Emphasis on Range of Analysis approaches Understanding Applications –Many issues subject of ongoing research –Will show recent results through examples –Gives you basis for further learning

11. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 11 of 17 Course Materials l Xerox of Text from Minuteman in Kendall Square -- about $20 l Tree-Age Software -- get direct, about $30 l Web: http//ardent.mit.edu/Real_Options l Bulletin Board: under web site. Will be used to make announcements, respond to questions l Excel capability -- sessions on advanced topics (Data Tables; What’s Best) will be arranged

12. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 12 of 17 Assignments l See Web site for details l Problem Sets, Exercises throughout semester l Best to do them as you go along l However, only need to turn in on due date l Mid-semester Quiz l Final Exam

13. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 13 of 17 Academic Honesty l To avoid possible confusion resulting from expectations elsewhere, note the standards that apply in this subject. l Anyone found cheating will receive zero for the quiz or examination. l Do graded Assignments individually. l We expect students to discuss the problem sets. However, they should then prepare their own reports for each assignment, in their own format and words. l Demonstrated evidence of copying will result in zeros for each paper with this evidence.

14. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 14 of 17 Weekly Recitation Sessions l They will show how to solve problems l Demonstrate Software –Advanced Excel Sessions –Tree-Age l Review for Quiz and Final

15. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 15 of 17 Meeting with Instructors l Use Bulletin Board at any time –Answers should be prompt –Share information with others l Teaching Assistant office hours to be arranged l Prof. de Neufville “office hours” after class; “office” in Building 7, 4th floor coffee shop. Appointments Tuesdays and Thursdays for specific issues.

16. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 16 of 17 QUESTIONS ? l THANK YOU FOR YOUR ATTENTION l WE ARE NOW AVAILABLE FOR DISCUSSIONS

17. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 17 of 17 Times for Recitations? l Tuesday 1……... l Tuesday 2……… l Tuesday 3……… l Tuesday 4………. l Wednesday 9……... l Wednesday 10……. l Thursday 1………. l Thursday 2……… l Thursday 3……… l Thursday 4……...