Lecture 12 -Introduction to Uncertainty Analysis

Lecture 12 -Introduction to Uncertainty Analysis - CE 395...

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CE 395 Engineering Economics 1.Introduction -  Choices with Uncertainty 2.Elementary Sensitivity Analysis Spring 2005 W. Hitchcock
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Uncertainty Analysis Economic evaluations require future estimates. Our confidence in the future estimates (costs, benefits, useful life, etc.) depends on many factors: Prior experience Competition Availability of data Stability of the industry or economy Technical risk Time length of study Acts of God
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Risk or Uncertainty What’s The Difference? Technically “uncertainty” means that the analyst has insufficient knowledge about the future to even establish a probabilistic assessment of an outcome. On the other hand, decisions under “risk” are those where the analyst establishes possible future outcomes with probabilities of occurrence attached. As a matter of practice, the terms are somewhat interchangeable because the term “Risk Analysis” means that uncertainty exists. Risk analysis awareness and application is crucial for sound engineering economic decision making.
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Sensitivity Analysis Historical data and assumptions are required to develop projected future cash flows. Some or all of the projected cash flows
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This note was uploaded on 09/26/2008 for the course CE 395 taught by Professor Hitchcock during the Summer '05 term at University of Alabama at Birmingham.

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Lecture 12 -Introduction to Uncertainty Analysis - CE 395...

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