- Journal Article
Urban planners face challenges in water infrastructure development decisions due to short-term variation in water availability and demand, long-term uncertainty in climate and population growth, and differing perspectives on the value of water. This paper classifies these multiple uncertainties and develops a decision framework that combines simulation for probabilistic uncertainty, scenario analysis for deep uncertainty, and multistage decision analysis for uncertainties reduced over time with additional information. This framework is applied to a case from Melbourne, Australia, where a drought from 1997 to 2009 prompted investment in a $5 billion desalination plant completed in 2012 after the drought ended. The results show opportunities for significant reduction in capital investment using flexible design. Building no infrastructure is best in most simulations. However, in 10% of simulations, building no infrastructure leads to regret of greater than $10 billion compared with a small, flexible desalination plant. Scenario analysis for deep uncertainties underlines the significant impact of assumptions about the future and also on value judgments about the cost of water scarcity in evaluating infrastructure performance.