Real Options by Spreadsheet: Parking Garage Case Example

TLDR

The model sidesteps complex financial procedures that hinder understanding and performance gains from real options. It uses a spreadsheet-based method with standard procedures, readily available data, and intuitive graphics to value real options. The study demonstrates that this spreadsheet approach is simple, accessible to engineers, and effectively applied to parking‑garage design.

Abstract

This case study shows how designers of infrastructure systems can evaluate flexibility in engineering systems in fairly simple ways. Specifically, it illustrates a spreadsheet approach to valuing “real options” in a project. The model avoids complex financial procedures, which are both inappropriate for most design issues and constitute barriers to understanding and thus achieving the substantial improvement in performance that real options enable. The spreadsheet approach uses standard procedures; is based on data available in practice; and provides graphics that explain the results intuitively. It should thus be readily accessible to practicing professionals responsible for engineering design and management. A practical application to the design of a parking garage demonstrates the ease of use and presentation of results of this approach.