Life-Cycle Flexibility

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Designing flexibility in a system with real options is one method for managing uncertainty. However, designing flexibility in a "complex system" is only one of several tasks that must be accomplished if the flexibility is to be deployable and of value. Many potential challenges exist throughout an option's life-cycle that makes design, evaluation, exercise and management of an option complex. "Complex real options" are composed of more than a single or simple change or addition to a system to create flexibility. Rather, a complex real option is likely composed of interconnecting technological, organizational and process components. A complex real option may be embedded in a complex system, which has technical and social system components and the behaviors that go along with this. To meet the need for considering flexibility in complex systems the concept of Life-Cycle Flexibility (LCF), or flexibility from "cradle to grave", is introduced. LCF considers both physical and social systems and spans the entire life-cycle of an option, starting with activities to ready an enterprise for flexible systems and continues through system monitoring and option exercise decisions.