Flexible engineering designs for urban water management in Lusaka, Zambia

Urban water systems are often designed using deterministic single values as design parameters. Subsequently the different design alternatives are compared using a discounted cash flow analysis that assumes that all parameters remain as-predicted for the entire project period. In reality the future is unknown and at best a possible range of values for design parameters can be estimated. A Monte Carlo simulation could then be used to calculate the expected Net Present Value of project alternatives, as well as so-called target curves (cumulative frequency distribution of possible Net Present Values). The same analysis could be done after flexibilities were incorporated in the design, either by using decision rules to decide about the moment of capacity increase, or by buying Real Options (in this case land) to cater for potential capacity increases in the future. This procedure was applied to a sanitation and wastewater treatment case in Lusaka, Zambia. It included various combinations of on-site anaerobic baffled reactors and off-site waste stabilisation ponds. For the case study, it was found that the expected net value of wastewater treatment systems can be increased by 35-60% by designing a small flexible system with Real Options, rather than a large inflexible system.