A GLUM Primer: How to Account for Risk with Uncertain NPVs Case Solution
Put simply, a 50% likelihood of getting an NPV of $1 million is certainly not as appealing as a 100% possibility of getting an NPV of $500,000. The basic logarithmic energy design (GLUM) build a single specific comparable through a risk profile (i.e., a "risk-adjusted NPV") which transcends ENPV to integrate threat distaste within the decision-making requirement. The simpleness and lots of appealing homes of the GLUM trigger us to recommend it as more appealing than various other methods to change an NPV risk account for danger.
The usage of likeness to create a risk profile for NPV worths is likewise now typical. While the anticipated net present worth (ENPV) is frequently utilized to transform a threat profile of unpredictable NPVs into a single-value matching, this technique disregards risk and also the choice maker's mindset towards risk.
PUBLICATION DATE: August 11, 2016
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