5.72 Scenarios are also useful in considering how options may be affected by future uncertainty. Scenarios should be chosen to draw attention to the major technical, economic and political uncertainties upon which the success of a proposal depends. Considering scenarios needs to be proportionate. It may take the form of asking simple 'what if' questions for small and medium sized projects, but extend to creating detailed models of future states of the world for major policies and large programmes. The expected NPV can be calculated for each scenario. It may also be helpful to undertake some sensitivity analysis within a scenario.
BOX 16: EXAMPLE OF SCENARIOS
Box 13 above shows that there is a 20 percent chance that there will be no net benefits (Outcome 1) but a 40 percent chance of net benefits of around £15 million NPV or more (Outcomes 3 and 4). Should it go ahead? Many other considerations then might play, such as whether there are other policies with more certain outcomes? Is it an essential policy area? |