Simulation¶

Replicate outcomes of uncertain process

Works with any distribution

• Regular/irregular
• Continuous/not
• Normal/not

Requirements¶

Distributions for key parameters

May be observed, estimated, assumed, or guessed

Steps¶

1. Create a valuation model

2. Identify most significant uncertainties

3. Tornado diagram

4. Choose distributions for uncertainties

5. Model distribution of outcomes

6. Set up decision rules for exercising flexibility, to ensure that it is right decision to exercise flexibility

For eg: “Expand if observed demand > Capacity over 2 years. But don’t expand towards the end of life”

Flexibility Types¶

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