Architecting Water Supply System – A Perspective from Value of Flexibility

Water supply system is socially, politically, and financially critical, and long term security of water supply has to be met in spite of the huge uncertainty in its operation decades since the time of design. Everyone concerned with architecting such a system faces a common challenge: how do we design a system to perform well in a constantly evolving and thus risky context? As one of the water-stress countries, Singapore dealt the challenge by architecting its water supply system around several sources to increase its flexibility. Using a real option perspective, this paper examines various water supply resources and examines their flexibility values in actively dealing with the risks. It is found that incorporating alternative water resources increases the flexibility of the water supply system and helps the system from financial cost, political risk, and socioeconomic risk aspects. Through the Singapore water supply system study, this paper presents to decision makers a perspective of flexibility to manage risk with quantitative awareness using a real option approach based on multiple objectives.