A Real Options Approach for NPV Investment Evaluation of Changeable Manufacturing Systems

2022
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Authors: Fredrik Olsson; Alexander Werthén; Ann-Louise Andersen
Published in: Towards Sustainable Customization: Bridging Smart Products and Manufacturing Systems
Publisher: Springer International Publishing

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Abstract

The chapter introduces a real options approach for evaluating the Net Present Value (NPV) of investments in changeable manufacturing systems, focusing on flexibility and reconfigurability. It addresses the challenge of justifying higher initial investments in these systems by incorporating uncertainty into the evaluation process. The real options approach, originally from financial options, is adapted to manufacturing systems to demonstrate the value of flexibility in uncertain market conditions. The chapter reviews related literature, presents a proposed model, and applies it to an illustrative case. It concludes with the development of a simplistic model that combines real options with NPV, making it accessible and acceptable to industry professionals. Future research directions are also suggested, emphasizing the need to incorporate more aspects of changeability and test the model in further industrial settings.

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previous chapter The Use of Principal Component Analysis for the Construction of a Reconfigurability Index

next chapter Methods and Models to Evaluate the Investment of Reconfigurable Manufacturing Systems: Literature Review and Research Directions

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Title: A Real Options Approach for NPV Investment Evaluation of Changeable Manufacturing Systems
Authors: Fredrik Olsson
Alexander Werthén
Ann-Louise Andersen
Publisher: Springer International Publishing
Book: Towards Sustainable Customization: Bridging Smart Products and Manufacturing Systems
Print ISBN: 978-3-030-90699-3

Electronic ISBN: 978-3-030-90700-6

Copyright Year: 2022
DOI: https://doi.org/10.1007/978-3-030-90700-6_14

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