Decision Support for Optimal Design of Water Distribution Networks: A Real Options Approach

Abstract

There is a growing concern about how the technical, managerial and financial capacity of drinking water systems can be sustained in the long run with future uncertainties. A water supply system is critical for the well- being of a community and it must provide water in sufficient quantity, of appropriate quality and without interruption. People have high expectations for the proper functioning of these systems but the future is uncertain and it is very difficult to conceive an infallible infrastructure. This work proposes a real options (ROs) approach that takes into account future uncertainty associated with water distribution networks. The ROs methodology extends traditional analysis to include flexible strategic implementation. This work describes a decision support methodology to design water networks that are adaptable over a long-term planning horizon. Representing design strategies as decision trees allows decision makers to easily adapt the system according to future circumstances. Results show that the ROs solution makes it possible to save on resources through an analysis based on an extended and uncertain planning horizon.