Number 7 in our TBL-CBA traps series.
7. Tolerating False Precision
The results are in – the Net Present Value is $101.234567 million (exactly) – let’s go! But wait…what if the risk associated with that number is +/- $200 million? How do you feel now? Is the project still a go? Robust TBL-CBA methodologies employ risk analysis so that all inputs are described by a probability curve derived from the low-expected-high values across the economics literature for a given input. Doing so means that you can offer confidence intervals (think, levels of certainty) attached to all the results. So, everything, including uncertainty, is on the table for the client.
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