1. AGWA: Decision Methodologies Rolf Olsen, 1 PhD Eugene Stakhiv, 1,2 PhD 1 Institute for Water Resources U.S. Army Corps of Engineers Alexandria, Virginia, USA 2 Johns Hopkins University Baltimore, Maryland, USA

2. Outline Uncertainty analysis for flood risk Alternative decision pathways Real options Flexible governance mechanisms International Upper Great Lakes Study examples

3. Uncertainty and Flood Damage Calculation Flood Stage (S) Flood Discharge (Q) Frequency Flood Damage (D) Q S P Q P D S D UEB - Upper Error Bound LEB - Lower Error Bound UEB LEB U.S. Army Corps of Engineers Procedures - HEC-FDA;1992

4. Alternative Decision Pathways Option A Option B Option C Option D Option E Option F Option G

5. Real Options In the presence of uncertainty, there is a benefit or option value to delay the decision until uncertainty is reduced. “The expected benefits of an irreversible decision should be adjusted to reflect the loss of options it entails.”

6. Real Option Analysis Net Present Value Real Options Initial Cost Time 1: Future Benefit/ Cost Time 2: Future Benefit/ Cost Time n: Future Benefit/ Cost Time 1: Option Time 2: Option Continue Abandon Expand

7. Flexible Governance Mechanisms Multiple alternative decision pathways require governance that has flexibility to make mid-course changes in the future Budget to monitor changing conditions Credibility to execute the options when it pays to do so