Flexible facility interior layout: a real options approach

Abstract

This paper explores a case of flexible facility layout, in which the layout process can be carried out in a dynamic manner responding to changing demands. We consider a facility such as an office building that needs to partition its interior space into units of different sizes and allocate them to different users. Facing different demands, each of which requires a different space size, the management of the facility needs to constantly exercise managerial real options, such as partitioning a big unit to small units and merging small units to a big one. Modeling the demand uncertainties as stochastic processes, we use the Monte Carlo simulation and solve rolling two-stage stochastic programs over time to value the flexible interior layout. Through numerical tests, we demonstrate that effectively and timely exercising the managerial options can significantly increase profit and service quality. Focusing on the dynamic behavior of the facility interior layout, the proposed options-based approach aims to improve facility management by proactive decision strategies. The approach may also be extended to facility expansion, maintenance and rehabilitation to increase service life and maintain service quality.

Using Real Options Theory to Evaluate Strategic Investment Options for Mobile Content Delivery

“…ROA has been amply used for the valuation of finance-related projects, retailing, auctioning, contracts, mergers & acquisitions, outsourcing, and leasing which are characterized by substantial risks (Mittendorf, 2004;Marcus & Anderson, 2006;Jiang et al, 2008;Kumar & Turnbull, 2008;Su et al, 2009). ROA has also been applied to value the flexibility embedded in operations management, facility management, manufacturing and production management, capacity planning, supply chain management, and inventory management projects (Boute et al, 2004, Kamrad & Siddique, 2004Kamrad & Ord, 2006;West & Bengtsson, 2007;Jao et al, 2007;Zhao & Tseng, 2007;Berling, 2008;Dulluri & Raghavan, 2008;Li & Rajagopalan, 2008;Driouchi et al, 2009;Huang, 2009;Lin, 2009). In addition, ROA has been applied to value environmental projects (Guthrie & Kumareswaran, 2009;Leroux et al, 2009), power and oil & gas-related projects (Takizawa & Suzuki, 2004;Wang & Min, 2006;Tseng & Lin, 2007;Bøckman et al, 2008;Hahn & Dyer, 2008;Porchet et al, 2009), research and development projects (Pennings & Lint, 2000;Koussis et al, 2007;Kim et al, 2008a;Miller & Clarke, 2008;Wu et al, 2008c), and pharmaceutical and health-related projects (Levaggi & Moretto, 2008;Pertile, 2009), among others.…”

The Decision Policies of Accepting or Rejecting Rental Request on Its Different Start and End Time

“…The other kind of argument has attempted to solve the management problems of a special house lease with a certain mathematic model mostly from the point of the utility of the lessees and landlord and the social welfare, such as [5], [6] and [7]. Reference [8] have consider a facility such as an office building that needs to partition its interior space into units of different sizes and allocate them to different users. Some literature focuses on the cost study, such as Reentry Costs, Mismatch Cost, Search Cost, etc.. Reference [9] has studied the housing tenancy markets and considered the reentry costs.…”