Cost-Benefit Analysis for Investment Decisions: Chapter 6 (Dealing With Uncertainty and Risk in Investment Appraisal)
In the financial cash flow analysis, a set of values for the project variables are selected to carry out the analysis for the base case that are projected over the life of the investment project. The values of these variables used in the analysis and the resulting outcomes from a predictive model are single values. In reality, uncertainty, which refers to variability in the value, is always present surrounding each of the future values of a project's key variables throughout the project life. In some cases especially environmental and health projects, because of lack of scientific knowledge and presence of technological innovation, it would be even more difficult to make projections. The uncertainty is further compounded as the effects of the project would be spread over a long period of time in the future. This chapter shows how to move from the deterministic world developed in the base case to a dynamic and probabilistic world in which uncertainty and risk in outcomes prevail in order that the analysis can present more objective and realistic results for decision makers. It also discusses how uncertainty and risk can be addressed and mitigated while managing the project.
|Date of creation:||Aug 2011|
|Contact details of provider:|| Postal: Kingston, Ontario, K7L 3N6|
Phone: (613) 533-2250
Fax: (613) 533-6668
Web page: http://www.econ.queensu.ca/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Savvakis C. Savvides, 2004.
"Risk Analysis in Investment Appraisal,"
- K. G. Balcombe & L. E. D. Smith, 1999. "Refining the use of Monte Carlo techniques for risk analysis in project planning," Journal of Development Studies, Taylor & Francis Journals, vol. 36(2), pages 113-135.
- Savvides, Savvakis C., 2000. "Market Analysis and Competitiveness in Project Appraisal," MPRA Paper 9796, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:qed:dpaper:19999. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bahman Kashi)
If references are entirely missing, you can add them using this form.