Case Study
Flexible Design Strategies for Sustainable Urban Water Systems
Yinghan Deng, Michel-Alexandre Cardin, Vladan Babovic, Deepak Santhanakrishnan, Petra Schmitter, Ali Meshgi
This study develops an integrated framework to evaluate urban water management systems under uncertainty by explicitly valuing design flexibility through real options analysis. Applied to a Singapore water catchment site, the framework compares conventional canal expansion with adaptive systems using porous pavements and green roofs. Results show that incorporating flexibility reduces capital expenditure, increases expected net present value, and enhances resilience against variable rainfall. The methodology demonstrates how real options in infrastructure design can yield 10–30% performance improvements and promote sustainable, adaptive urban water systems.
image by ChrisTYCat @ Adobe Stock
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Motivation
Urbanization, land scarcity, and climate variability have strained traditional deterministic water infrastructure design methods. Conventional discounted cash flow (DCF) and scenario planning fail to capture the deep uncertainty surrounding rainfall, policy, and technology evolution, leading to designs that perform poorly outside predicted conditions.
This study was motivated by the need to create proactive, resilient urban water systems that can adapt to changing conditions. Building on the concept of flexibility in engineering design, the authors applied real options thinking to urban stormwater systems—enabling planners to adjust scale, expand capacity, or reconfigure systems as new information emerges.
Methodologies
- Baseline Deterministic Model (DCF Analysis): Quantified costs, revenues, and environmental impacts for two system designs:
- Design A: Expansion of conventional drainage canals.
- Design B: Adoption of porous pavements and green roofs to retain and reuse rainwater.
- Uncertainty Analysis: Applied Geometric Brownian Motion (GBM) for stochastic modelling of water prices. Used Intensity Duration Frequency (IDF) curves and probabilistic rainfall simulations to generate 2,000 rainfall scenarios (see Fig. 2, p. 7167). Evaluated Expected NPV (ENPV), Value at Gain (VAG), and Value at Risk (VAR).
- Flexibility Analysis (Real Options): Introduced expansion options to both designs (e.g., capacity increase if floods exceed thresholds). Modelled “if–then” decision rules to trigger system scaling. Calculated the Value of Flexibility (VoF) using simulation-based NPV differentials (Eq. 14, p. 7171).
- Sensitivity Analysis: Conducted One-Factor-At-A-Time (OFAT) tests on parameters such as recycling efficiency, flood damage cost, and discount rate. Identified recycling efficiency of green roofs and water treatment cost as dominant influences (see Fig. 7–8, p. 7172).
Insights
- Performance Improvement: Flexible design B (porous pavements + green roofs) achieved positive ENPV (+$14,843) and a Value of Flexibility of $105,799, converting an initially marginal investment into a profitable one.
Expansion flexibility reduced unnecessary upfront investment by ~29%Deng2013-WR. - Risk Reduction: Real options enabled adaptive scaling—expansions were triggered in only 10% of simulations, confirming the value of staged deployment under uncertain rainfall.
- Design Implications: Flexible infrastructure design serves as a form of insurance—hedging against downside climate risks while capturing upside opportunities in water reuse value. The analysis also validated the “Flaw of Averages” effect: deterministic designs overestimate reliability under uncertainty.
- Generalization: The four-step flexibility framework can be extended to other urban systems (e.g., stormwater harvesting, district cooling, or flood defence).
Training
Relevant lectures and skills:
- Real Options Analysis
- Stochastic Modelling (GBM, IDF Curves)
- Monte Carlo Simulation
- Life Cycle and Uncertainty Analysis
- Sensitivity and Scenario Analysis
