Flexible Facility Interior Layout: A Real Options Approach

Abstract

This paper explores a case of flexible facility layout, in which the layout process can be carried out in a dynamic manner responding to changing demands. We consider a facility such as an office building that needs to partition its interior space into units of different sizes and allocate them to different users. Facing different demands, each of which requires a different space size, the management of the facility needs to constantly exercise managerial real options, such as partitioning a big unit to small units and merging small units to a big one. Modelling the demand uncertainties as stochastic processes, we use the Monte Carlo simulation and solve rolling two-stage stochastic programs over time to value the flexible interior layout. through numerical tests, we demonstrate that effectively and timely exercising the managerial options can significantly increase profit and service quality. Focusing on the dynamic behaviour of the facility interior layout, the proposed options-Based approach aims to improve facility management by proactive decision strategies. the approach may also be extended to facility expansion, maintenance and rehabilitation to increase service life and maintain service quality.Journal of the Operational Research Society (2007) 58, 729-739. doi:10.1057/palgrave.jors. 2602189 Published online 22 March 2006.

Department(s)

Engineering Management and Systems Engineering

Keywords and Phrases

Facility; Integer programming; Interior layout; Monte Carlo simulation; Real options; Stochastic model

International Standard Serial Number (ISSN)

1476-9360; 0160-5682

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2024 Taylor and Francis Group; Taylor and Francis, All rights reserved.

Publication Date

01 Jan 2007

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