Uncertainty in the Economic Appraisal of Water Quality Improvement Investments: The Case for Project Risk Analysis
This technical paper argues that Monte Carlo risk analysis offers a more comprehensive and informative way to look at project risk ex-ante than the traditional (and often arbitrary), one-influence-at-atime sensitivity analysis approach customarily used in IDB analyses of economic feasibility. The case for probabilistic risk analysis is made using data from a project for cleaning up the Tietê river in São Paulo, Brazil. A number of ways to handle uncertainty about benefits are proposed, and their implications for the project acceptance decision and the consequent degree of presumed project risk are explained and illustrated.
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| Format: | Technical Notes biblioteca |
| Language: | English |
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Inter-American Development Bank
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| Subjects: | Water Management, Water Supply and Sanitation, tiete river;Water Resources;Environment;Environmental Law and Economics;brazil;risk analysis;Urban Environment, |
| Online Access: | http://dx.doi.org/10.18235/0008825 https://publications.iadb.org/en/uncertainty-economic-appraisal-water-quality-improvement-investments-case-project-risk-analysis |
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| Summary: | This technical paper argues that Monte Carlo risk analysis offers a more comprehensive and informative way to look at project risk ex-ante than the traditional (and often arbitrary), one-influence-at-atime sensitivity analysis approach customarily used in IDB analyses of economic feasibility. The case for probabilistic risk analysis is made using data from a project for cleaning up the Tietê river in São Paulo, Brazil. A number of ways to handle uncertainty about benefits are proposed, and their implications for the project acceptance decision and the consequent degree of presumed project risk are explained and illustrated. |
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