A Real Options Approach to the Design and Architecture of Water Supply Systems Using Innovative Water Technologies Under Uncertainty

Journal of Hydroinformatics, Vol. 14, No. 1, 2012

18 Pages Posted: 6 Sep 2014

See all articles by Stephen X. Zhang

Stephen X. Zhang

University of Sydney

Vladan Babovic

National University of Singapore (NUS)

Date Written: September 4, 2012

Abstract

Water supply has become a priority for developed and developing nations of the world. Conventional water resources alone cannot meet the growing demand for water in urban cities. Management of the problem is amplified by uncertainty associated with different development strategies. Singapore has limited conventional water resources and progressively architects its water supply system through acquiring and sustaining multiple (alternative) water resources through innovative technologies. The full rationale and merits of such a policy cannot be properly understood based on traditional project valuation methods alone. This paper provides decision support using a real options approach by evaluating innovative water technologies from multiple perspectives under uncertainty.

This paper demonstrates that incorporating innovative water technologies into water supply systems can concurrently improve water supply from the financial, political and socioeconomic perspectives. The development of innovative water technologies provides flexibility to the water supply system, and is a fundamental and effective means of risk management. The evaluation of innovative water technologies is based on an integrated real options approach, which provides decision support for architecting water supply systems under uncertainty. The approach gives specific tangible values for the water technologies and complements the general prescriptive Integrated Water Resources Management (IWRM) framework.

Keywords: evaluation of innovation, social-political-technical system, technological innovation, strategic planning, risk management

Suggested Citation

Zhang, Stephen Xu and Babovic, Vladan, A Real Options Approach to the Design and Architecture of Water Supply Systems Using Innovative Water Technologies Under Uncertainty (September 4, 2012). Journal of Hydroinformatics, Vol. 14, No. 1, 2012. Available at SSRN: https://ssrn.com/abstract=2491961

Stephen Xu Zhang (Contact Author)

University of Sydney ( email )

4229 H70 Building
Abercrombie St
Darlington, NSW 2006
Australia

Vladan Babovic

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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