2024

Stepanov Roman; Kozlova Mariia; Yeomans Julian Scott

The assessment of investment projects relies on plentiful assumptions and combines significant uncertainty with rapidly accumulating complexity. However, the tools commonly employed in this discipline are far from ideal and often fail to capture the required level of complexity to adequately assist the wide spectrum of disparate needs of the various decision-makers. This chapter shows how Simulation Decomposition (SimDec) can improve investment decisions by shifting the focus from static invest-or-not decision rules towards dynamic, actionable project design mindsets. After introducing cash flow modelling, a case model is analyzed using SimDec to illustrate the method’s context-specific capabilities. SimDec not only captures the uncertainties and reveals which factors are most important but also shows how different combinations of them can shape the overall profitability of the project. The chapter adopts a multistakeholder perspective, informal language, and analogies to capture the shortfalls of traditional approaches to investment appraisal.