Case Study
Recapitalizing and Expanding Coast Guard Base Seattle – A Real Options Analysis
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Key Idea Description
Mission Optimization of Coast Guard Base Seattle through strategic infrastructure expansion and real options analysis. This study focuses on enhancing the base’s capacity to accommodate new cutter fleets by employing flexible design principles that allow for dynamic responses to unforeseen changes in delivery schedules and operational needs. The expansion plan incorporates acquiring additional land and restructuring existing facilities to support Arctic and Pacific operations effectively, maximizing operational readiness and minimizing capital investment risks.
- Broad Area: Capacity Expansion, Ports, Strategic Engineering
- Main issues of case: Flexible timing as an option, Flexible location as an option, Cost reduction objective, Performance improvement objective
- Main analytic topics: Multidimensional sensitivity to uncertainties, Multidimensional evaluation
Insights
- Flexible design principles play a crucial role in supporting decision-making for the U.S. Coast Guard’s facility expansion in Seattle, enabling the identification and analysis of uncertainties to optimize resource allocation.
- By prioritizing environmental remediation before land acquisition and considering the implications of delayed ship arrivals, the Coast Guard can minimize capital investments while maximizing mission capability, showcasing the strategic value of flexible project management approaches.
Training
Relevant lectures:
- Paradigm change in engineering systems and planning
- How to optimise design and decision-making under uncertainty
- How to manage the design process
Gallery
Abstract
new assets. This assessment incorporates flexible design to identify and analyze project uncertainties, uses deterministic and stochastic analysis, and offers real options to decision-makers.
This analysis evaluates the options available using capital investment (CAPEX) and a performance metric defined as additional ships added per $100M investment. The primary uncertainties assessed are the cost of construction, environmental remediation, and real estate, in addition to the actual cutter delivery dates or changes to homeport decisions. The CG’s plan to acquire
Seattle Port Authority owned property to the south and execute project elements following the land purchase precludes the organization from having flexible design options.
Based on this analysis, the CG should reorder its project elements to delay the land acquisition and complete the environmental remediation elements. Furthermore, it should look at actual project element costs to inform subsequent project choices. Finally, it should understand the cost of delayed ship arrivals if construction is also delayed from both a financial and performance aspect. These flexible options help minimize capital investments while maximizing the mission capability.
Summary
Introduction to Coast Guard Base Seattle Expansion and Recapitalization
This detailed case study by Joshua Fant evaluates the strategic expansion and recapitalization of the U.S. Coast Guard’s Base Seattle. This initiative is critical as the base prepares to accommodate new ocean-going fleets including Polar Security Cutters and Offshore Patrol Cutters. The study utilizes real options analysis to navigate uncertainties such as construction costs, environmental issues, and changes in ship delivery schedules.
Understanding the Project’s Scope
The U.S. Coast Guard is looking to expand its 22-acre Base Seattle to support its largest fleet recapitalization effort since World War II. This expansion is complicated by the base’s location in a seismically active zone and its existing infrastructure that is inadequate for the new cutters expected between 2024 and 2031. The project explores various courses of action (COAs) to determine the most effective use of space and resources considering potential acquisitions of adjacent properties.
Financial and Technical Analysis (Net Present Value)
The project’s financial analysis forecasts a significant investment, with the recommended course of action (COA 3) involving the acquisition of adjacent Port Authority property to facilitate the expansion. This COA is projected to cost $425 million and is expected to add approximately 1.18 ships for every $100 million invested.
Flexibility in Base Expansion
Fant’s report highlights the flexibility in planning and execution as a major factor in the project’s strategy. The Coast Guard considers several COAs with varying levels of property acquisition and development:
- COA 2: Utilizes existing property without expansion, limited to six cutters.
- COA 3 (recommended): Expands southward, allowing for up to eight cutters.
- COA 4 and 5: Consider additional expansions but are less feasible due to acquisition challenges.
Economic Performance and Recommendations
- Economic Analysis: Emphasizes the importance of timing in land acquisition and development phases to optimize financial and operational outcome
- Strategic Recommendations: Suggest adjustments in project execution to better align with ship delivery schedules and mitigate risks associated with construction delays and environmental remediation.
Implications for Military Infrastructure Development
This case study illustrates the importance of flexible and adaptive planning in military infrastructure projects, particularly in urban settings with logistical and environmental constraints. The approaches discussed in the study could serve as a model for other military and governmental projects facing similar expansion and modernization challenges.
Conclusion
The study concludes that strategic land acquisition and phased development, underpinned by rigorous environmental and structural assessments, will provide the necessary capacity and operational readiness. By incorporating real options analysis, the project can adapt to changes in ship delivery and other uncertainties, ensuring that investments are made judiciously.