Thursday 10 February 2022

Uncertainty analysis for Project procedures

The uncertainty analysis is the estimation and study of the changes and influences of various external factors that cannot be controlled in advance in the process of production and operation. uncertainties in economic development are common, such as whether investment is exceeded, whether the construction period is delayed, whether the price of raw materials rises, and whether the production capacity can meet the design requirements. in order to make correct decisions, it is necessary to conduct a comprehensive technical and economic evaluation, calculate the probability of occurrence of each factor and the impact on the decision-making plan, and select the best solution from it. its basic analysis methods are: profit and loss analysis, sensitivity analysis, probability analysis. mainly calculate the profit and loss value, regret value, and expectation value of the scheme.

brief introduction

analysis and calculation of the degree of impact on the investment return of the project due to changes in uncertainties. through this analysis, we can try to clarify and reduce the impact of uncertainties on economic benefits, predict the impact resistance of project investment to certain unforeseen political and economic risks, thereby proving the reliability and stability of project investment, and avoiding the expected profits and benefits after production, resulting in losses for enterprises. the relatively reliable and objectively realistic estimates or forecasts made by uncertainty analysis will have very important reference value for decision makers and future operators. usually uncertainty analysis can be divided into break-even analysis, sensitivity analysis, and probability analysis.

the characteristics of the development of objective things and the limitations of people's understanding of objective things make the prediction results of objective things may deviate from people's expectations, and there is uncertainty, and investment projects are no exception. although the project market, technology, equipment, engineering schemes, environmental protection, supporting conditions, investment financing and input-output prices have been studied as thoroughly as possible in the analysis and evaluation of investment project decision-making, the future status of project operation may still deviate from the envisaged situation, and the actual results after the implementation of the project may deviate from the basic plan predicted, and the investment project may therefore face potential dangers. this is due to the fact that the data used in the analysis and evaluation of the decision-making of the above-mentioned investment projects are based on historical data and experience to predict a long period of time in the future, and the uncertainty of the forecast is well known. therefore, these data are more or less uncertain, resulting in uncertainty in the decision-making analysis and evaluation results of investment projects.

generating factors

in order to improve the scientific nature of technical and economic analysis and reduce the deviation of evaluation conclusions, it is necessary to further study the impact of changes in certain technical and economic factors on the economic benefits of technical solutions, so uncertainty analysis is formed.
decision-making will be affected by many factors during implementation. factors that create uncertainty are:

1. changes in the future economic situation. such as inflation and price changes;
2. technological progress has changed technical equipment and production technology;
3. changes in production capacity;
4. changes in construction funds and construction periods;
5. changes in national economic policies, regulations and regulations. for example, the business decisions of enterprises will be affected by factors such as national economic policy adjustments, changes in market needs, changes in the supply conditions of raw materials and outsourcing parts, fluctuations in product prices, and intensified market competition, which cannot be controlled in advance.

therefore, in order to make correct decisions, it is necessary to conduct a technical and economic analysis of these uncertain factors, calculate the probability of their occurrence and the degree of influence on the decision-making scheme, and select the scheme with the best economic effect (or satisfaction).


uncertainty analysis requires the knowledge, experience, information and judgment of future development of decision makers, and scientific analysis methods are adopted. the usual methods are: 

(1) calculate the profit and loss value of the scheme. that is, the different benefits caused by various factors are calculated, and the scheme with the largest benefit is the optimal scheme; 

(2) the regret value of the scheme is calculated. that is, the difference between the return value and the maximum return value of the program adopted due to the error in the judgment of the uncertainty factor is calculated, and the solution with the least regret value is the best solution; 

(3) the expected value is calculated by using probability, that is, the standard value of the scheme comparison, and the scheme with the best expected value is the best solution; 

(4) the criterion requirements of the decision-making are comprehensively considered, and the rule is not deviated. it can be summarized that uncertainty analysis can be divided into break-even analysis, sensitivity analysis, probability analysis and criterion analysis.

among them, break-even analysis is only used for financial evaluation, and sensitivity analysis and probability analysis can be used for both financial evaluation and

Economic evaluation.

the following classifications can also be made according to the type of uncertainty and the treatment method:

  • variations of the situation handling method
  • variation has a range of break-even analysis sensitivity analysis
  • changes follow statistical laws in probability analysis
  • changes are neither scoped nor regular, and are analyzed by criteria

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