tailieunhanh - Risk Analysis

Where the possible values could have significant impact on project’s profitability, a decision will involve taking a risk. In some situations, degree of risk can be objectively determined. Estimating probability of an event usually involves subjectivity. | © Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Chapter 9: Risk Analysis In the preceding chapters we assumed all costs and benefits are known with certainty. The future is uncertain: factors internal to the project factors external to the project Risk and Uncertainty Where the possible values could have significant impact on project’s profitability, a decision will involve taking a risk. In some situations, degree of risk can be objectively determined. Estimating probability of an event usually involves subjectivity. Risk and Uncertainty In risk analysis different forms of subjectivity need to be addressed in deciding: what the degree of uncertainty is; whether the uncertainty constitutes a significant risk; whether the risk is acceptable. Establishing the extent to which the outcome is sensitive to the assumed values of the inputs: it tells how sensitive the outcome | © Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Chapter 9: Risk Analysis In the preceding chapters we assumed all costs and benefits are known with certainty. The future is uncertain: factors internal to the project factors external to the project Risk and Uncertainty Where the possible values could have significant impact on project’s profitability, a decision will involve taking a risk. In some situations, degree of risk can be objectively determined. Estimating probability of an event usually involves subjectivity. Risk and Uncertainty In risk analysis different forms of subjectivity need to be addressed in deciding: what the degree of uncertainty is; whether the uncertainty constitutes a significant risk; whether the risk is acceptable. Establishing the extent to which the outcome is sensitive to the assumed values of the inputs: it tells how sensitive the outcome is to changes in input values; it doesn’t tell us what the likelihood of an outcome is. Sensitivity Analysis Risk modeling is the use of discrete probability distributions to compute expected value of variable rather than point estimate. Risk Modeling The expected cost of road construction can be derived as: E(C) = $10 + $60 + $25 = $95 And the expected NPV as: E(NPV) = + + = $41 Usually uncertainty about more than one input or output; The probability distribution for NPV depends on aggregation of probability distributions for individual variables; Joint probability distributions for correlated and uncorrelated variables. Joint Probability Distributions Assume that if road usage increases, so to do road maintenance costs. There is a 20% chance of road maintenance costs being $50 and road user benefits being $70; a 60% chance of road maintenance costs being $100 and road user benefits being $125, and so on. Correlated and Uncorrelated Variables An example is the normal .