Using Real Options In Embedded Automotive System Design

The automotive customers demand new functionality with every new product release and the time-to-market is constantly shortened. The automotive embedded systems are characterized by being mechatronic systems which adds complexity. The systems are often resource constrained and trade-offs between the system behaviour and the resources required is of great importance. The system complexity and the many uncertain factors create a need for support in the design process. Many design features such as memory and processor capacity can be seen as options, i.e. giving you the right but not the obligation to use them in the future. The valuation method using Real Options provides the opportunity to analyze the cost of designing for future growth of a platform, based on the estimated value of the future functionality.In this paper the use of Real Options is applied on a real case within the automotive industry. The studied company develops commercial vehicles for a broad range of applications. In this case study a valuation is performed on two different design alternatives of function allocation. The design alternatives vary in hardware, software, cabling etc. The case study has been per-formed together with the developing organization and it has therefore been possible to observe the acceptance of the method. The study shows how Real Option valuation provides valuable guidance when making system design decisions and more importantly also show how it can be used and accepted by system engineers. The method does not only provide a way of valuing sys-tem designs, but it also forces the system engineer to think about the future in a systematic manor. The value of a flexible design can thereby be quantified making the trade-off between short and long term solutions more accurate.