Published by:
Harvard Business Publishing
Length: 12 pages
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Abstract
Capital investment decisions are usually gambles based on little empirical information. An analysis of risk-based profiles determines which factors influence future costs and revenues and weighs them to develop an uncertainty profile. Each variable''s estimates are placed on a probability distribution curve. A company''s simulation reveals the range of possible outcomes for the individual criteria, such as ROI and payback. The simulation is a useful way for management to evaluate past investments and select new ones.
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Abstract
Capital investment decisions are usually gambles based on little empirical information. An analysis of risk-based profiles determines which factors influence future costs and revenues and weighs them to develop an uncertainty profile. Each variable''s estimates are placed on a probability distribution curve. A company''s simulation reveals the range of possible outcomes for the individual criteria, such as ROI and payback. The simulation is a useful way for management to evaluate past investments and select new ones.