On the value of project safeguards: Embedding real options in complex products and systems

This study defines a project safeguard as the design and physical development work needed to ensure, or enhance, the embedding of a real option in complex products and systems (CoPS). Safeguards operationalize optionlike strategic thinking at implementation. I examine safeguarding investments through an in-depth multiple-case study of 12 options embedded across 5 projects encompassed by an airport expansion programme. This includes options to phase out delivery (stage-option), grow capacity (growth-option), and switch operational regime (switch-option). Passive safeguards only involve design work, whereas active safeguards involve both design and physical execution. The analysis shows how the confluence between the uncertainty of option exercising and the modularity of the relevant functional elements in relation to the CoPS architecture affects the attractiveness of safeguarding. High uncertainty makes safeguarding less attractive as it can lead to sunk costs that may not pay off over the CoPS operating life. Conversely, high modularity increases the attractiveness of safeguarding because (1) safeguards can be limited to marginal investments at the interfaces between the functional elements with other CoPS subsystems, and (2) the stability of modular design rules increases the likelihood that safeguards remain valid over time. Safeguards build options into integrative CoPS. This flexibility and redundancy makes them resilient to change stemming from option exercising if uncertainties resolve favourably in the future.