Decision tree
The decision tree shows each option as a branch and places investments by timing from left to right.
Real options guide
Real options analysis is useful where management can stage capital, defer investment, or invest only if demand or technical triggers eventuate. The expected value view probability-weights each future investment, while the expected present cost view also discounts the timing of those investments.
Expected present cost is the probability-weighted cost of each investment discounted back to today. For cost-only comparisons, the lower expected present cost is usually preferred if the options deliver comparable service outcomes.
Because the model treats investments as costs, the NPV impact is shown as a negative value equal to expected present cost. This makes the capital burden visible while preserving the expected-value logic.
A staged pathway can reduce expected cost when later investments only occur if demand, load growth, approvals, or technical conditions justify them. The value comes from avoiding or deferring capital that may not be required.
The model is deliberately simple: it helps compare engineering investment pathways using finance discipline. Use it to test whether a committed asset is justified against a flexible sequence of smaller contingent works.