Simulation techniques in project appraisal.(c2007)

Abstract

This paper was prepared to show, present and develop the methodology and uses of the Monte Carlo Simulation Technique in Investment Project Appraisal and risk assessment so that uncertainty is reduced and minimized and on the other hand, profit is maximized. It provides a framework for project risk appraisal. The first part of the paper marks the influence of risk assessment in project appraisal. The second part presents the strategies used to appraise an investment and the methods developed to maximize profit while minimizing cost and risk. The third part describes the Monte Carlo Simulation. The fourth and fifth parts discuss the investment decisions based respectively on the Net Present Value and on the IRR. The sixth section shows the results obtained to reach the optimum price for a cubic meter of water from source to end-user for an optimum rate of return. The final section furnishes the output of the Monte Carlo simulation technique runs on excel spreadsheet by using Risk Amp add-ins.