Engineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 1 of 18Engineering Systems Analysis for DesignIntroductionEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 2 of 18GOOD MORNING BONJOUR ! GUTEN MORGEN ! O HAYO GOZAIMASU! SELAMAT DATANG! G’DAY, MATES ! ¡BUENOS DIAS! ΚΑΛΗ ΜΕΡΑ! NI HAO MA ! BOM DIA !Engineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 3 of 18Welcome! It is a pleasure to be with you We will be covering much new material  Looking forward to learning with you Hope to make some long-term friendsEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 4 of 18Introduction of Teachersy Richard de Neufville– Prof. of Engineering Systems and of Civil and Environmental Engineering– Course Organizer Michael “Mike” Hanowsky– Teaching Assistant – recitations and portfolios– Doctoral Student in Engineering Systems Division – …. with extensive experience (and has passed generals) Richard-Duane Chambers– Teaching Assistant – grading– Technology and Policy 2ndYear studentEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 5 of 18Introduction of Students Please fill out sign-up sheets being passed around Please indicate if you are– taking course– shopping aroundEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 6 of 18ENGINEERING SYSTEMS ANALYSIS FOR DESIGN  Central Idea: Using Analysis to Configure Engineering Systems for best long- term performance Means: “Real Options”, i.e., physical things that system managers and designers can do to add flexibility– To avoid bad outcomes (acts like insurance)– To seize opportunities for improvement– Overall, to maximize expected performance in uncertain world MIT School-Wide Elective, with many numbers: ESD 71, 1.146, 2.192, 3.56, 16.861, 22.821 Choose what meets your course requirementsEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 7 of 18Logic of the Course Engineering Systems exist in Uncertainty– Technical -- New Developments– Economy – Boom, Recession, Prices, Competition– Social -- New Regulations, Political Changes Engineering Systems Need to Adapt– Take advantage of Opportunities– Avoid Hazards, Risks Flexibility is Essential Part of Design– How do we value flexibility?– How much is enough? “Real Options” provides AnswersEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 8 of 18New Material Brand-new Approach to Engineering Design– Use of “Real Options” may lead to Paradigmatic Change Revolutionary possibilities– Explicit consideration of flexibility, not possible earlier => savings (or increase in performance) of order of 30% ! Approach derived from “Options Theory”– Nobel Prize-winning development in finance Modified to fit engineering realities– Lack of historical data– Need for Approximate Procedures Idea is to develop coherent road-map for designEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 9 of 18New Course Structure Field is moving rapidly… … So 2006 is changed from 2005 (and before) The hope is to make it much better for everyone Your help is needed – please provide feedback on your experience – Too fast? Or too slow?– Something missing? Errors on Slides?– Better examples needed? You are partners in this cutting-edge learning Engineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 10 of 18Structure of Material – 5 Parts1. Benchmark: Analysis Assuming Certainty-- this is the traditional standard2. Analysis Recognizing Uncertainty-- this shift alone leads to different solutions3. Decision Analysis Approach-- A practical approach to uncertainty4. Real Options Analysis: Theory-- The sophisticated approach5. Real Options Analysis: Models for Engineering-- Adapting theory to practice – current examplesEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 11 of 18Prerequisites Syllabus assumes – comfort with basic calculus, probability, statistics– familiarity with some advanced concepts of Excel used in course To see if you are sufficiently on top of Excel material, take self-assessment test posted on course site at http://ardent.mit.edu/real_options/ROcse_Excel_latest/Excel_class.htmlIf exercise is too difficult for you, come to:ESD 70 – next Mon, Tues, Wed, Thurs; 5 – 7 pm; This Room 32-144 Listener is recommended, 3 units credit possibleEngineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 12 of 18Course Materials Many lectures refer to chapters from my text, Applied Systems Analysis (out of print) and research articles. All can be downloaded in pdf from course web site: Web: http//ardent.mit.edu/Real_Options Detailed Syllabus, assignments accessible directly from here. Note carefully: Site updated weekly! Bulletin Board: under web site. Will be used to make announcements, respond to questions. CONSULT REGULARLY !!Engineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 13 of 18Assignments See Web site for details Problem Sets, Exercises throughout semester Best to do them as you go along However, only need to turn in on due date “Application Portfolio” designed to help you apply RO to your interests – Hope you like it Mid-semester Quiz Final Exam -- Date set by Registrar end of September Engineering Systems Analysis for Design Richard de Neufville ©Massachusetts Institute of Technology Introduction Slide 14 of 18Academic Honesty To avoid confusion with expectations elsewhere, note the standards that apply in this