Real options valuation in the design of future surface combatants
Majchrzak, Lauren B.
Mun, Johnathan C.
Housel, Thomas J.
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In a rapidly evolving world, the U.S. Navy must build an affordable, sustainable fleet of surface combatants that is capable of keeping pace with any threat. This can only be accomplished with a highly sophisticated fleet of reconfigurable vessels capable of meeting their service-life expectancy of 40 years. Modular Adaptable Ship (MAS) designs that include flexibility, decoupled payloads from the platform, standard interfaces, planned access routes, and growth margin for future technological advances present a viable option for the U.S. Navy. If the design approach to future surface combatants incorporates the use of Real Options Valuation (ROV) within the Integrated Risk Management (IRM) framework to account for unknown risk at the time of design, a reasonable portfolio of design options can be presented throughout the various stages of production. From our examination of the use of modular payloads on the Freedom (LCS-1) and Independence (LCS-2) classes and the planned access routes and growth margin for modernization on the San Antonio (LPD-17) class, a strong case can be made that a surface combatant designed with flexibility and adaptability would afford benefits, ultimately, to all entities within the Department of Defense.
RightsThis publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.
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