1. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 1 of 19 Engineering Systems Analysis for Design Introduction

2. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 2 of 19 GOOD MORNING! BONJOUR ! GUTEN MORGEN ! O HAYO GOZAIMASU ! SELAMAT DATANG ! ¡BUENOS DIAS! ΚΑΛΗ ΜΕΡΑ ! NI HAO MA ! BOM DIA !

3. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 3 of 19 Welcome! l It is a pleasure to be with you l We will be covering much new material l Looking forward to learning with you l Hope to make some long-term friends

4. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 4 of 19 Today’s class has 3 sections l General Organization Introduction l Discussion of Paradigm Shift l Illustrative Example – Garage Case

5. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 5 of 19 Introduction of Teachers Richard de Neufville –Prof. of Engineering Systems and Civil Eng’r’g –Course Organizer –Sabbaticals abroad: England, France, Japan, Australia … latest Portugal… and California l Michel-Alexandre Cardin –Teaching Assistant – recitations and portfolios –Doctoral Student in ESD, TPP graduate –work experience in Canada, Singapore and UK l Tommy Rand-Nash –TA – portfolios…. SM in ESD and Materials Sci.

6. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 6 of 19 Introduction of Students l Please fill out sign-up sheets being passed around l Please indicate if you are –taking course –shopping around

7. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 7 of 19 ENGINEERING SYSTEMS ANALYSIS FOR DESIGN l Central Idea: Using Analysis to Configure Engineering Systems for best expected long- term performance l Means: Flexibility, that is, physical things that system managers and designers can do to make it possible to –To avoid bad outcomes (acts like insurance) –To seize opportunities for improvement –Overall, to maximize expected performance in uncertain world l MIT School-Wide Elective, with many numbers: ESD 71, 1.146, 3.56, 16.861, 22.821 Choose number that meets your course requirements

8. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 8 of 19 Logic of the Course l Engineering Systems exist in Uncertainty –Technical – New Developments –Economy – Boom, Recession, Prices, Competition –Social – New Regulations, Political Changes l Engineering Systems Need to Adapt –Take advantage of Opportunities –Avoid Hazards, Risks l Flexibility is Essential Part of Design –How do we value flexibility? –How much is enough? l Course provides Methods to Determine Answers

9. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 9 of 19 New Material l New Approach to Engineering Design –Recognition of Uncertainty and Use of Flexibility may lead to Paradigmatic Change in Engineering Design Process l Revolutionary possibilities –Explicit consideration of flexibility, not possible earlier => savings (or increase in expected performance/unit cost) of order of 30% ! l Related to “Real Options”, but different l Procedures developed to fit engineering realities –Lack of historical data –Need for Approximate Procedures l Idea is to develop coherent road-map for design

10. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 10 of 19 New Course Structure 2008 is deeply reorganized and improved (I hope!) l This new version represents content of new textbook being written for MIT Press as part of ESD Series l Your help is appreciated! Thank you in advance!! Please provide feedback on your experience –Too fast? Or too slow? –Logic needs improvement? Errors on Slides? –Better examples needed? l You are partners in developing cutting-edge learning

11. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 11 of 19 Structure of Material – 3 Parts 1. Basics: -- Recognition of Uncertainty -- Valuation Fundamentals -- Timing issues 2. Key Methods: -- Uncertainty Modeling -- Flexibility Valuation Methods 3. Flexibility Identification Methods “in” Systems

12. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 12 of 19 Prerequisites l Syllabus assumes –comfort with basic calculus, probability, statistics –familiarity with some advanced concepts of Excel used in course l To see if you are sufficiently on top of Excel material, take self-assessment test posted on course site at http://ardent.mit.edu/real_options/ROcse_Excel_latest/ Excel_class.html http://ardent.mit.edu/real_options/ROcse_Excel_latest/ Excel_class.html l If exercise is too difficult for you, come to: ESD 70 – next Mon, Tues, Wed, Thurs; 5:30 – 7:30 pm; Room 32-155 l Listener is recommended, 3 units credit possible

13. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 13 of 19 Course Is Web-based All materials on web: –Draft Chapters of New Text, Professional Papers –Copies of Lectures; Assignments –See Detailed Course schedule on course web site –http://ardent.mit.edu/Real_Options –Note carefully: Site updated weekly! l Bulletin Board is available for class discussions –http://stellar.mit.edu/S/course/ESD/fa08/ESD.71/index.html –Instructors will answer questions directly here –Students can provide each other tips

14. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 14 of 19 Assignments l See Web site for details l Focus on “Application Portfolio” -- designed to help you apply course to your interests – Hope you like it l Exercises to support above l Problem Sets – do on your own, consult solutions on web for immediate feedback (to be posted) l Mid-semester Quiz l Final Exam -- Registrar sets Date September 18

15. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 15 of 19 Academic Honesty l To avoid confusion with expectations elsewhere, note the standards that apply in this subject: l Anyone found cheating will get ZERO for quiz or exam. l Do graded Assignments individually. We expect students to discuss course and issues. However, you should then prepare your own reports for each assignment, in your own format and words. l Demonstrated evidence of copying will result in zeros for EACH paper with this evidence.

16. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 16 of 19 Weekly Recitation Sessions l They will show how to solve problems l Give alternative explanations of concepts l Review for Quiz and Final

17. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 17 of 19 Meeting with Instructors l Use Bulletin Board at any time –Answers should be prompt –Share information with others l Teaching Assistant office hours to be arranged l Prof. de Neufville “office hours” after class; “office” in Stata Center café l Appointments Tuesdays and Thursdays for specific issues.

18. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 18 of 19 QUESTIONS ? l THANK YOU FOR YOUR ATTENTION l WE ARE NOW AVAILABLE FOR DISCUSSIONS

19. Engineering Systems Analysis for Design Richard de Neufville © Massachusetts Institute of Technology Introduction Slide 19 of 19 Times for Recitations? l Wednesday 1… l Wednesday 2.… l Wednesday 3…. l Tuesday 1…. l Tuesday 2…. l Tuesday 3… l Tuesday 4… l Thursday 9…