Other techniques
You'll learn three advanced techniques for handling risk and uncertainty in investment appraisal: simulation, risk-adjusted discount rates, and adjusted payback.
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In this lesson
- 0:00 Other techniques for risk management
- 0:13 Simulation approach explained
- 0:31 Risk adjusted discount rates
- 0:34 Adjusted payback period method
About this lesson
Simulation uses computer modelling to run hundreds or thousands of scenarios across multiple variables, showing both expected NPV and the full distribution of possible outcomes—far more robust than expected values alone. Risk-adjusted discount rates increase the discount rate applied to higher-risk projects, while adjusted (or discounted) payback reduces future cash flows to reflect uncertainty. These techniques are essential for FM, AFM, and SBL, where you need to evaluate complex investment decisions with multiple sources of uncertainty and justify your recommendations with rigorous analysis.
Duration: 2m
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