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On corrective factors for project uncertainty
Author(s) -
Rudd Dale F.,
Watson Charles C.
Publication year - 1965
Publication title -
the canadian journal of chemical engineering
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.404
H-Index - 67
eISSN - 1939-019X
pISSN - 0008-4034
DOI - 10.1002/cjce.5450430613
Subject(s) - rate of return , internal rate of return , capital budgeting , return on investment , investment (military) , actuarial science , capital (architecture) , risk–return spectrum , engineering economics , economics , operations research , expected return , modified internal rate of return , cost of capital , return of capital , econometrics , capital investment , computer science , business , investment performance , microeconomics , finance , engineering , project appraisal , production (economics) , portfolio , profit (economics) , archaeology , politics , political science , law , history
Abstract A common method of accounting for uncertainty in an engineering project is to assign a minimum acceptable rate of return on capital investments. This minimum rate of return is assigned in a rather arbitrary way according to the expected risk in the project. In this paper we introduce the concepts of statistical decision theory and show how the minimum rate of return can be estimated in terms of uncertainty in sales income, project life, investment, manufacturing costs, etc.