A5.21 Monte Carlo analysis can be used to understand the impact of uncertainty in key evidence or assumptions that are inputs into estimates of cost, benefits or risks as part of an appraisal.
A5.22 Monte Carlo analysis is a simulation-based risk modelling technique that produces expected values and confidence intervals. The outputs are the result of many simulations that model the collective impact of a number of uncertainties. It is useful when there are a number of variables with significant uncertainties, which have known, or reasonably estimated, independent probability distributions. It requires a well estimated model of the likely impacts of an intervention and expert professional input from an operational researcher, statistician, econometrician, or other experienced practitioner.
A5.23 The technique is useful where variations in key inputs are expected and where they are associated with significant levels of risk mitigation costs, such as flood prevention. This can be used to determine what level of investment might be required to deal with extreme events such as rainfall events, which will have a statistical likelihood.