Probabilistic Analysis of Modernization Optionsby Walter O. Wunderlich,
James E. Giles,
Abstract: Benefit-cost analysis is a standard procedure for reaching planning decisions. Cost overruns and benefit shortfalls are also common occurrences. One reason for the difficulty of predicting future benefits and costs is that they usually cannot be represented with sufficient reliability by accurate values, because of the many uncertainties that enter the analysis through assumptions on inputs and system parameters. Therefore, ranges of variables need to be analyzed instead of single values. As a consequence, the decision criteria, such as net benefit and benefit-cost ratio, also vary over some range. A probabilistic approach will be demonstrated as a tool for assessing the reliability of the results.
Subject Headings: Benefit cost ratios | Probability | Power plants | Hydro power | Industrial facilities | Risk management | System reliability | Uncertainty principles
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