Reference no: EM131015495
Risk and Financial Analysis
There is always uncertainty when we forecast or estimate future revenues and costs. The totality of the uncertainty can roughly be captured as:
UTot = U{UE1, UE2, UI1, UI2, UI3, UIS}
Where:
UTot Constructed estimate of the total uncertainty related to a decision based on typical financial analysis approaches
UE1 Unknown factors not considered in our financial models
UE2 Factors that are known but not incorporated into our financial models
UI1 Factors that are known and incorporated into our financial models that have a known degree of uncertainty surrounding them
UI2 Factors that are known and incorporated into our financial models for which we fail to recognize the full nature of their uncertainty
UI3 Factors that are known and incorporated into our financial models that have little or no uncertainty, but we erroneously assume to have a significant degree of surrounding them
UIS Uncertainty related to the structure of the financial models that we use in out analysis
How will these differing "sources" of uncertainty impact our decision-making ability?
How might we deal with the different forms of uncertainty?
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