In this contribution, we present a novel methodology for flexible design of industrial systems based on their detailed differential value analysis. Evolving from graph theory, this methodology devises a mechanism for systematic structural decomposition of large-scale industrial systems into basic processing elements (paths and trees), combination of elements into subsystems and evaluation of individual elements/subsystems to correlate with the overall system margin. This helps to reduce the size of the large combinatorial problems and comprehensively analyse the multiple objectives and the sets of optimal operating states, capital investments and marginal contributions at elemental/subsystems levels that are critical for flexible designs. The approach generates the whole set of optimal solutions compared to the one point solution of the deterministic approaches (MINLP) while allowing additional complexity of process level models in the site-wide integration due to the systematic structural decomposition of a system into its basic elements/subsystems. A recent industrial application on oil upgrading system design is used to illustrate the methodology. (c) 2006 Elsevier Ltd. All rights reserved.