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Decision Analysis for Managers by David Charlesworth

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Chapter 7

Building a Deterministic Model

Time to Run the Numbers

We have talked with our experts and updated our influence diagram accordingly. It is now time to start building a deterministic financial model. By deterministic, I mean a model that provides one “answer” (or set of answers, e.g., NPV and internal rate of return of the project) and does not address uncertainty (yet). Each uncertainty is set to its base value. Once we have built and validated a deterministic model, we’ll use it to explore which uncertainties are important (Chapter 8) and then update it for simulation (Chapter 9). We will also use the deterministic model to populate the end nodes of the decision tree(s) so that the trees can be rolled back as we showed in Figure ...

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