Making Informed Investment Decisions in an Uncertain World : A Short Demonstration

Governments invest billions of dollars annually in long-term projects. Yet deep uncertainties pose formidable challenges to making near-term decisions that make long-term sense. Methods that identify robust decisions have been recommended for inves...

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Main Authors:	Bonzanigo, Laura, Kalra, Nidhi
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	APPROACH AVAILABILITY BALANCE CAPACITY BUILDING CAPACITY UTILIZATION CAPITAL COST CAPITAL COSTS CARBON CLIMATE CLIMATE CHANGE CLIMATE CHANGE IMPACTS CLIMATE CHANGE MITIGATION CLIMATE UNCERTAINTY COAL COAL PLANT COST OF ENERGY COST OF GAS COST-BENEFIT COST-BENEFIT ANALYSIS DEEP UNCERTAINTY DEVELOPING COUNTRIES DEVELOPING COUNTRY DISCOUNT RATE DISCOUNT RATES DUST ECONOMIC ANALYSES ECONOMIC ANALYSIS ECONOMIC DEVELOPMENTS ECONOMIC GROWTH ECONOMIC MODEL ECONOMIC MODELS ECONOMICS ELECTRICITY ELECTRICITY DEMAND ELECTRICITY GENERATION ELECTRICITY MARKETS ELECTRICITY PRICES ELECTRICITY PRODUCTION ELECTRICITY SUPPLY ENERGY PRICES ENERGY PRODUCTION ENERGY PRODUCTION PLANT ENERGY SECURITY ENERGY SUPPLY FEASIBILITY FINANCIAL ANALYSES FLUE GASES FUTURES GAS GAS COSTS GAS DESULFURIZATION GAS PRICE GAS PRICES IMPORTS INFRASTRUCTURE INVESTMENTS INSURANCE INTERNAL RATE OF RETURN INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL LENDING INVESTING INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT PROJECTS INVESTMENTS IN ENERGY LAND USE LENDING DECISIONS LOAN LONG-TERM COST LOW-CARBON LOWER DISCOUNT RATE MINIMUM PRICE NATURAL GAS NATURAL GAS MARKET NUCLEAR PLANT POLICY ANALYSIS POLICY MAKERS PORTFOLIOS POWER POWER PLANT POWER PLANTS POWER SYSTEMS PRICE OF ELECTRICITY PRICE OF GAS PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS RATE OF RETURN RATES OF RETURN RENEWABLE GENERATION RETURNS RISK AVERSION RISK INSURANCE RISK MANAGEMENT RISK MITIGATION SCENARIOS SENSITIVITY ANALYSES SULFUR SULFUR DIOXIDE TERRORISM UNCERTAINTIES UNCERTAINTY ANALYSIS URBAN DEVELOPMENT WHOLESALE PRICE WHOLESALE PRICES WIND WIND PLANT
Online Access:	http://documents.worldbank.org/curated/en/2014/02/18895127/making-informed-investment-decisions-uncertain-world-short-demonstration http://hdl.handle.net/10986/17310

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recordtype	oai_dc
spelling	okr-10986-173102021-04-23T14:03:37Z Making Informed Investment Decisions in an Uncertain World : A Short Demonstration Bonzanigo, Laura Kalra, Nidhi APPROACH AVAILABILITY BALANCE CAPACITY BUILDING CAPACITY UTILIZATION CAPITAL COST CAPITAL COSTS CARBON CLIMATE CLIMATE CHANGE CLIMATE CHANGE IMPACTS CLIMATE CHANGE MITIGATION CLIMATE UNCERTAINTY COAL COAL PLANT COST OF ENERGY COST OF GAS COST-BENEFIT COST-BENEFIT ANALYSIS DEEP UNCERTAINTY DEVELOPING COUNTRIES DEVELOPING COUNTRY DISCOUNT RATE DISCOUNT RATES DUST ECONOMIC ANALYSES ECONOMIC ANALYSIS ECONOMIC DEVELOPMENTS ECONOMIC GROWTH ECONOMIC MODEL ECONOMIC MODELS ECONOMICS ELECTRICITY ELECTRICITY DEMAND ELECTRICITY GENERATION ELECTRICITY MARKETS ELECTRICITY PRICES ELECTRICITY PRODUCTION ELECTRICITY SUPPLY ENERGY PRICES ENERGY PRODUCTION ENERGY PRODUCTION PLANT ENERGY SECURITY ENERGY SUPPLY FEASIBILITY FINANCIAL ANALYSES FLUE GASES FUTURES GAS GAS COSTS GAS DESULFURIZATION GAS PRICE GAS PRICES IMPORTS INFRASTRUCTURE INVESTMENTS INSURANCE INTERNAL RATE OF RETURN INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL LENDING INVESTING INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT PROJECTS INVESTMENTS IN ENERGY LAND USE LENDING DECISIONS LOAN LONG-TERM COST LOW-CARBON LOWER DISCOUNT RATE MINIMUM PRICE NATURAL GAS NATURAL GAS MARKET NUCLEAR PLANT POLICY ANALYSIS POLICY MAKERS PORTFOLIOS POWER POWER PLANT POWER PLANTS POWER SYSTEMS PRICE OF ELECTRICITY PRICE OF GAS PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS RATE OF RETURN RATES OF RETURN RENEWABLE GENERATION RETURNS RISK AVERSION RISK INSURANCE RISK MANAGEMENT RISK MITIGATION SCENARIOS SENSITIVITY ANALYSES SULFUR SULFUR DIOXIDE TERRORISM UNCERTAINTIES UNCERTAINTY ANALYSIS URBAN DEVELOPMENT WHOLESALE PRICE WHOLESALE PRICES WIND WIND PLANT Governments invest billions of dollars annually in long-term projects. Yet deep uncertainties pose formidable challenges to making near-term decisions that make long-term sense. Methods that identify robust decisions have been recommended for investment lending but are not widely used. This paper seeks to help bridge this gap and, with a demonstration, motivate and equip analysts better to manage uncertainty in investment decisions. The paper first reviews the economic analysis of ten World Bank projects. It finds that analysts seek to manage uncertainty but use traditional approaches that do not evaluate options over the full range of possible futures. Second, the paper applies a different approach, Robust Decision Making, to the economic analysis of a 2006 World Bank project, the Electricity Generation Rehabilitation and Restructuring Project, which sought to improve Turkey's energy security. The analysis shows that Robust Decision Making can help decision makers answer specific and useful questions: How do options perform across a wide range of potential future conditions? Under what specific conditions does the leading option fail to meet decision makers' goals? Are those conditions sufficiently likely that decision makers should choose a different option? Such knowledge informs rather than replaces decision makers' deliberations. It can help them systematically, rigorously, and transparently compare their options and select one that is robust. Moreover, the paper demonstrates that analysts can use the same data and models for Robust Decision Making as are typically used in economic analyses. Finally, the paper discusses the challenges in applying such methods and how they can be overcome. 2014-03-18T20:20:34Z 2014-03-18T20:20:34Z 2014-02 http://documents.worldbank.org/curated/en/2014/02/18895127/making-informed-investment-decisions-uncertain-world-short-demonstration http://hdl.handle.net/10986/17310 English en_US Policy Research Working Paper;No. 6765 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Turkey
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	APPROACH AVAILABILITY BALANCE CAPACITY BUILDING CAPACITY UTILIZATION CAPITAL COST CAPITAL COSTS CARBON CLIMATE CLIMATE CHANGE CLIMATE CHANGE IMPACTS CLIMATE CHANGE MITIGATION CLIMATE UNCERTAINTY COAL COAL PLANT COST OF ENERGY COST OF GAS COST-BENEFIT COST-BENEFIT ANALYSIS DEEP UNCERTAINTY DEVELOPING COUNTRIES DEVELOPING COUNTRY DISCOUNT RATE DISCOUNT RATES DUST ECONOMIC ANALYSES ECONOMIC ANALYSIS ECONOMIC DEVELOPMENTS ECONOMIC GROWTH ECONOMIC MODEL ECONOMIC MODELS ECONOMICS ELECTRICITY ELECTRICITY DEMAND ELECTRICITY GENERATION ELECTRICITY MARKETS ELECTRICITY PRICES ELECTRICITY PRODUCTION ELECTRICITY SUPPLY ENERGY PRICES ENERGY PRODUCTION ENERGY PRODUCTION PLANT ENERGY SECURITY ENERGY SUPPLY FEASIBILITY FINANCIAL ANALYSES FLUE GASES FUTURES GAS GAS COSTS GAS DESULFURIZATION GAS PRICE GAS PRICES IMPORTS INFRASTRUCTURE INVESTMENTS INSURANCE INTERNAL RATE OF RETURN INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL LENDING INVESTING INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT PROJECTS INVESTMENTS IN ENERGY LAND USE LENDING DECISIONS LOAN LONG-TERM COST LOW-CARBON LOWER DISCOUNT RATE MINIMUM PRICE NATURAL GAS NATURAL GAS MARKET NUCLEAR PLANT POLICY ANALYSIS POLICY MAKERS PORTFOLIOS POWER POWER PLANT POWER PLANTS POWER SYSTEMS PRICE OF ELECTRICITY PRICE OF GAS PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS RATE OF RETURN RATES OF RETURN RENEWABLE GENERATION RETURNS RISK AVERSION RISK INSURANCE RISK MANAGEMENT RISK MITIGATION SCENARIOS SENSITIVITY ANALYSES SULFUR SULFUR DIOXIDE TERRORISM UNCERTAINTIES UNCERTAINTY ANALYSIS URBAN DEVELOPMENT WHOLESALE PRICE WHOLESALE PRICES WIND WIND PLANT
spellingShingle	APPROACH AVAILABILITY BALANCE CAPACITY BUILDING CAPACITY UTILIZATION CAPITAL COST CAPITAL COSTS CARBON CLIMATE CLIMATE CHANGE CLIMATE CHANGE IMPACTS CLIMATE CHANGE MITIGATION CLIMATE UNCERTAINTY COAL COAL PLANT COST OF ENERGY COST OF GAS COST-BENEFIT COST-BENEFIT ANALYSIS DEEP UNCERTAINTY DEVELOPING COUNTRIES DEVELOPING COUNTRY DISCOUNT RATE DISCOUNT RATES DUST ECONOMIC ANALYSES ECONOMIC ANALYSIS ECONOMIC DEVELOPMENTS ECONOMIC GROWTH ECONOMIC MODEL ECONOMIC MODELS ECONOMICS ELECTRICITY ELECTRICITY DEMAND ELECTRICITY GENERATION ELECTRICITY MARKETS ELECTRICITY PRICES ELECTRICITY PRODUCTION ELECTRICITY SUPPLY ENERGY PRICES ENERGY PRODUCTION ENERGY PRODUCTION PLANT ENERGY SECURITY ENERGY SUPPLY FEASIBILITY FINANCIAL ANALYSES FLUE GASES FUTURES GAS GAS COSTS GAS DESULFURIZATION GAS PRICE GAS PRICES IMPORTS INFRASTRUCTURE INVESTMENTS INSURANCE INTERNAL RATE OF RETURN INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL LENDING INVESTING INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT PROJECTS INVESTMENTS IN ENERGY LAND USE LENDING DECISIONS LOAN LONG-TERM COST LOW-CARBON LOWER DISCOUNT RATE MINIMUM PRICE NATURAL GAS NATURAL GAS MARKET NUCLEAR PLANT POLICY ANALYSIS POLICY MAKERS PORTFOLIOS POWER POWER PLANT POWER PLANTS POWER SYSTEMS PRICE OF ELECTRICITY PRICE OF GAS PROBABILITY DISTRIBUTION PROBABILITY DISTRIBUTIONS RATE OF RETURN RATES OF RETURN RENEWABLE GENERATION RETURNS RISK AVERSION RISK INSURANCE RISK MANAGEMENT RISK MITIGATION SCENARIOS SENSITIVITY ANALYSES SULFUR SULFUR DIOXIDE TERRORISM UNCERTAINTIES UNCERTAINTY ANALYSIS URBAN DEVELOPMENT WHOLESALE PRICE WHOLESALE PRICES WIND WIND PLANT Bonzanigo, Laura Kalra, Nidhi Making Informed Investment Decisions in an Uncertain World : A Short Demonstration
geographic_facet	Turkey
relation	Policy Research Working Paper;No. 6765
description	Governments invest billions of dollars annually in long-term projects. Yet deep uncertainties pose formidable challenges to making near-term decisions that make long-term sense. Methods that identify robust decisions have been recommended for investment lending but are not widely used. This paper seeks to help bridge this gap and, with a demonstration, motivate and equip analysts better to manage uncertainty in investment decisions. The paper first reviews the economic analysis of ten World Bank projects. It finds that analysts seek to manage uncertainty but use traditional approaches that do not evaluate options over the full range of possible futures. Second, the paper applies a different approach, Robust Decision Making, to the economic analysis of a 2006 World Bank project, the Electricity Generation Rehabilitation and Restructuring Project, which sought to improve Turkey's energy security. The analysis shows that Robust Decision Making can help decision makers answer specific and useful questions: How do options perform across a wide range of potential future conditions? Under what specific conditions does the leading option fail to meet decision makers' goals? Are those conditions sufficiently likely that decision makers should choose a different option? Such knowledge informs rather than replaces decision makers' deliberations. It can help them systematically, rigorously, and transparently compare their options and select one that is robust. Moreover, the paper demonstrates that analysts can use the same data and models for Robust Decision Making as are typically used in economic analyses. Finally, the paper discusses the challenges in applying such methods and how they can be overcome.
format	Publications & Research :: Policy Research Working Paper
author	Bonzanigo, Laura Kalra, Nidhi
author_facet	Bonzanigo, Laura Kalra, Nidhi
author_sort	Bonzanigo, Laura
title	Making Informed Investment Decisions in an Uncertain World : A Short Demonstration
title_short	Making Informed Investment Decisions in an Uncertain World : A Short Demonstration
title_full	Making Informed Investment Decisions in an Uncertain World : A Short Demonstration
title_fullStr	Making Informed Investment Decisions in an Uncertain World : A Short Demonstration
title_full_unstemmed	Making Informed Investment Decisions in an Uncertain World : A Short Demonstration
title_sort	making informed investment decisions in an uncertain world : a short demonstration
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2014/02/18895127/making-informed-investment-decisions-uncertain-world-short-demonstration http://hdl.handle.net/10986/17310
_version_	1764436831337709568

Making Informed Investment Decisions in an Uncertain World : A Short Demonstration

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