Investments under pressure: A real options approach to prepare for emergency asylum shelter in a multi actor setting

Real options is a useful tool that can introduce more flexibility in investments to address pending uncertain factors attached to investments in constructions for emergency shelter capacity by higher level governments. However, insufficient attention is given to how real options can enhance decision making under pressure. Inspired by the challenges of capacity investments by the Dutch government under pressure by the migration influx of 2015, we developed a real options approach dealing with the challenges arising from that pressure for the construction of shelter capacity. It is based on the introduction of a permanent asset development portfolio to include a prepared set of capacity investment alternatives. In the approach we express each investment as a subset of follow-on real options that respectively model expansion, abandonment and timing decisions. The approach is empirically tested to a real asset development portfolio of emergency shelter options of the Dutch Government in the Netherlands in 2016. The study highlights that the value of preparedness lies in two functions. First, as a packaged solution that acts as a more efficient and effective replacement for the limited resources available to find a solution during a crisis. Second, the time to involve both public and private parties in the decision making should be reduced by preparing all parties on the possibly needed decisions. Our study reveals the merit of the real option approach in terms of preparation time, suitable timing and capacity use.