Formulation of Financial Valuation Methodologies for NASA's Human Spaceflight Projects

The National Aeronautics and Space Administration (NASA) must continually evaluate proposals to upgrade its human spaceflight systems. These proposals may be initiated to enhance safety, improve performance, or provide improved cost value. In the current restrictive budget environment, the cost valuation should be strengthened to ensure the best use of limited funding. NASA has not frequently utilized financial analysis in project consideration, and business case analysis is often lacking during annual budgetary assessments. Some of the reasons inhibiting financial analysis are uncertainty in the projections of long life-cycle costs, gains that may seem intangible and difficult to mone-tize, and the political environment. This paper explores ways in which some financial valuation methods, coupled with reformulation of project cash flows, might enhance NASA's analysis process. Among these methods is real option analysis (ROA), which is discussed in the context of several NASA upgrade projects.