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(RISK-1626) Uncertainty Assessment of Business Plans Using Monte Carlo Simulations

Primary Author: Mr. Antoine de Chillaz and Mr. Bruno N. Rodrigues

Audience Focus: Intermediate
Application Type: Application
Venue: 2014 AACE International Annual Meeting, New Orleans, LA, USA

Abstract: Economic analysis, such as business plan, provides valuable data regarding investment decisions for industrial projects, however it is inherently subject to uncertainty (construction cost, operability of asset, cost of utilities…). A common technique to address uncertainty is to carry out a sensitivity analysis for input variables of the business plan. This paper introduces a probabilistic approach based on Monte Carlo simulations which aims at providing a quantitative picture of the range of the possible financial outcomes of a project. This method provides a better insight of risks both regarding investment decisions and assessment of different technical solutions. The paper describes a methodology regarding a practical use of business plans for project management purpose. It also illustrates the benefits of this general approach with an example of a thermal power plants project.