| Summary: | The goal of this research is to develop an analytical framework for screening for real options “in”
an engineering system. Real options is defined in the finance literature as the right, but not the
obligation, to take an action (e.g. deferring, expanding, contracting, or abandoning) at a
predetermined cost and for a predetermined time. These are called "real options" because they
pertain to physical or tangible assets, such as equipment, rather than financial instruments. Real
options improve a system’s capability of undergoing classes of changes with relative ease. This
property is often called “flexibility.” Recently, the DoD has emphasized the need to develop
flexible system in order to improve operational, technical, and programmatic effectiveness. The
aim of this research is to apply real options thinking to weapon acquisitions in order to promote
the ability of weapon system programs to deftly avoid downside consequences or exploit upside
opportunities.
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