Flexibility in Early Stage Design of US Navy Ships: An Analysis of Options

This thesis explores design options for naval vessels and provides a framework for analyzing their benefit to the Navy. Future demands on Navy warships, such as new or changing missions and capabilities, are unknowns at the time of the ship's design. Therefore, ships often require costly engineering changes throughout their service life. These are expensive both fiscally because the Navy pays for engineering and installation work and operationally because either a warship cannot carry out a desired mission need or is carrying out a mission for which it was not initially designed. One method of addressing uncertainty in capital assets is by imbedding flexibilities in their architecture. The thesis offers early stage design suggestions on flexibilities for naval platforms to incorporate pre-planned repeats of the platform with new or different missions. A conceptual platform created the SCAMP includes each of these suggestions in its architecture. Then, the thesis uses an analysis framework similar to real options to evaluate the value of including these expansion options in early stage design versus traditional design methods and their products. The analysis uses a version of the MIT Cost Model for early stage ship design to determine acquisition and life cycle costs. The model was modified to support this analysis by allowing a simulation of possible mission changes with their severity distributed stochastically over a realistic time horizon. Subsequently, the model calculates these effects on life cycle cost. The most important result is the value of the framework for evaluating these managerial options. This framework can be extended to the subsystem level or to the system-of-systems level. In this application, the model predicts that, on average, a flexible platform should not only cost less to build, but also reduce modernization costs by 9% per ship over its life cycle. Therefore, counterintuitively, building a less-capable ship with the flexibility to expand capabilities or switch missions actually provides greater expected utility during its service life. Thesis Supervisor: Richard de Neufville Title: Professor of Engineering Systems and Civil and Environmental Engineering Thesis Supervisor: Mark Welsh Title: Professor of the Practice of Naval Construction and Engineering (This Page Intentionally Left Blank)