Using fuzzy real options in a brownfield redevelopment decision support system

  • Authors:

  • Qian Wang;Keith W. Hipel;D. Marc Kilgour

  • Affiliations:

  • Department of Systems Design Engineering, University of Waterloo, Waterloo, Ontario, Canada;Department of Systems Design Engineering, University of Waterloo, Waterloo, Ontario, Canada;Department of Mathematics, Wilfrid Laurier University, Waterloo, Ontario, Canada

  • Venue:
  • SMC'09 Proceedings of the 2009 IEEE international conference on Systems, Man and Cybernetics
  • Year:
  • 2009

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Abstract

A prototype decision support system is developed for private developers to evaluate brownfield redevelopment projects based on fuzzy real options. Redevelopment investments under high uncertainty can be better assessed using fuzzy real options than when employing the traditional Net Present Value (NPV) method. When using NPV, private developers tend to require high risk premiums and regard these projects as unprofitable. Hence, a better valuation method is needed to reveal the real value of a brownfield. The fuzzy real option model seems to be appropriate for this purpose. A Decision Support System (DSS) is proposed based on this model in order to evaluate a brownfield site and provide private developers with better investment advice. This DSS's architecture and user interface are introduced and discussed. Implementation techniques are compared and selected according to their advantages and disadvantages. An illustrative example is used to demonstrate this system's processing capability. It is found that the proposed DSS is flexible and user-friendly. It can generate not only a price, but also an optimized strategy for dealing with uncertainties, which has great potential in applications.