ASTM E1369-15
(Guide)Standard Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems
Standard Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems
SIGNIFICANCE AND USE
5.1 Investments in long-lived projects such as buildings are characterized by uncertainties regarding project life, operation and maintenance costs, revenues, and other factors that affect project economics. Since future values of these variable factors are generally not known, it is difficult to make reliable economic evaluations.
5.2 The traditional approach to project investment analysis has been to apply economic methods of project evaluation to best-guess estimates of project input variables as if they were certain estimates and then to present results in single-value, deterministic terms. When projects are evaluated without regard to uncertainty of inputs to the analysis, decision makers may have insufficient information to measure and evaluate the risk of investing in a project having a different outcome from what is expected.
5.3 Risk analysis is the body of theory and practice that has evolved to help decision makers assess their risk exposures and risk attitudes so that the investment that is the best bet for them can be selected.
Note 1: The decision maker is the individual or group of individuals responsible for the investment decision. For example, the decision maker may be the chief executive officer or the board of directors.
5.4 Uncertainty and risk are defined as follows. Uncertainty (or certainty) refers to a state of knowledge about the variable inputs to an economic analysis. If the decision maker is unsure of input values, there is uncertainty. If the decision maker is sure, there is certainty. Risk refers either to risk exposure or risk attitude.
5.4.1 Risk exposure is the probability of investing in a project that will have a less favorable economic outcome than what is desired (the target) or is expected.
5.4.2 Risk attitude, also called risk preference, is the willingness of a decision maker to take a chance or gamble on an investment of uncertain outcome. The implications of decision makers having different risk attitudes i...
SCOPE
1.1 This guide covers techniques for treating uncertainty in input values to an economic analysis of a building investment project. It also recommends techniques for evaluating the risk that a project will have a less favorable economic outcome than what is desired or expected.2
1.2 The techniques include breakeven analysis, sensitivity analysis, risk-adjusted discounting, the mean-variance criterion and coefficient of variation, decision analysis, simulation, and stochastic dominance.
1.3 The techniques can be used with economic methods that measure economic performance, such as life-cycle cost analysis, net benefits, the benefit-to-cost ratio, internal rate of return, and payback.
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Designation: E1369 − 15
Standard Guide for
Selecting Techniques for Treating Uncertainty and Risk in
the Economic Evaluation of Buildings and Building
1
Systems
This standard is issued under the fixed designation E1369; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision.Anumber in parentheses indicates the year of last reapproval.A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
1. Scope for Investments in Buildings and Building Systems
E1121Practice for Measuring Payback for Investments in
1.1 This guide covers techniques for treating uncertainty in
Buildings and Building Systems
input values to an economic analysis of a building investment
E1185Guide for Selecting Economic Methods for Evaluat-
project. It also recommends techniques for evaluating the risk
ing Investments in Buildings and Building Systems
thataprojectwillhavealessfavorableeconomicoutcomethan
2 E1946Practice for Measuring Cost Risk of Buildings and
what is desired or expected.
Building Systems and Other Constructed Projects
1.2 The techniques include breakeven analysis, sensitivity
E2204Guide for Summarizing the Economic Impacts of
analysis,risk-adjusteddiscounting,themean-variancecriterion
Building-Related Projects
and coefficient of variation, decision analysis, simulation, and
2.2 Adjuncts:
stochastic dominance.
DiscountFactorTables Adjunct to Practices E917, E964,
4
1.3 Thetechniquescanbeusedwitheconomicmethodsthat
E1057, E1074, and E1121
measure economic performance, such as life-cycle cost
analysis, net benefits, the benefit-to-cost ratio, internal rate of
3. Terminology
return, and payback.
3.1 Definitions—For definitions of general terms related to
building construction used in this guide, refer to Terminology
2. Referenced Documents
E631; and for general terms related to building economics,
3
2.1 ASTM Standards:
refer to Terminology E833.
E631Terminology of Building Constructions
E833Terminology of Building Economics
4. Summary of Guide
E917Practice for Measuring Life-Cycle Costs of Buildings
4.1 This guide identifies related ASTM standards and ad-
and Building Systems
juncts. It describes circumstances when measuring uncertainty
E964Practice for Measuring Benefit-to-Cost and Savings-
and risk may be helpful in economic evaluations of building
to-Investment Ratios for Buildings and Building Systems
investments.This guide defines uncertainty, risk exposure, and
E1057Practice for Measuring Internal Rate of Return and
risk attitude. It presents nonprobabilistic and probabilistic
Adjusted Internal Rate of Return for Investments in
techniques for measuring uncertainty and risk exposure. This
Buildings and Building Systems
guide describes briefly each technique, gives the formula for
E1074Practice for Measuring Net Benefits and Net Savings
calculating a measure where appropriate, illustrates the tech-
niques with a case example, and summarizes its advantages
and disadvantages.
1
This guide is under the jurisdiction ofASTM Committee E06 on Performance
of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
4.2 Since there is no best technique for measuring uncer-
Economics.
tainty and risk in every economic evaluation, this guide
Current edition approved Oct. 1, 2015. Published October 2015. Originally
concludes with a discussion of how to select the appropriate
approved in 1990. Last previous edition approved in 2011 as E1369–11. DOI:
10.1520/E1369-15. technique for a particular problem.
2
For an extensive overview of techniques for treating risk and uncertainty, see
4.3 This guide describes in detail how risk exposure can be
Marshall, H.E., Techniques for Treating Uncertainty and Risk in the Economic
Evaluation of Building Investments,NationalInstituteofStandardsandTechnology, measured by probability functions and distribution functions
Special Publication 757, 1988.
3
For referenced ASTM standards, visit the ASTM website, www.astm.org, or
contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
4
Standards volume information, refer to the standard’s Document Summary page on Available from ASTM International Headquarters. Order Adjunct No.
the ASTM website. ADJE091703. Original adjunct produced in 1984.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
1
---------------------- Page: 1 ----------------------
E1369 − 15
(see Annex A1). It also describes how risk attitude can be 6. Procedures
incorporated using utility theory and other approaches (see
6.1 The recommended steps for carrying out an evaluation
Annex A2).
of uncertainty or risk are as follows:
6.1.1 Determine appropriate economic measure(s) for
5. Significance and Use
evaluating th
...
This document is not an ASTM standard and is intended only to provide the user of an ASTM standard an indication of what changes have been made to the previous version. Because
it may not be technically possible to adequately depict all changes accurately, ASTM recommends that users consult prior editions as appropriate. In all cases only the current version
of the standard as published by ASTM is to be considered the official document.
Designation: E1369 − 11 E1369 − 15
Standard Guide for
Selecting Techniques for Treating Uncertainty and Risk in
the Economic Evaluation of Buildings and Building
1
Systems
This standard is issued under the fixed designation E1369; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
1. Scope
1.1 This guide covers techniques for treating uncertainty in input values to an economic analysis of a building investment
project. It also recommends techniques for evaluating the risk that a project will have a less favorable economic outcome than what
2
is desired or expected.
1.2 The techniques include breakeven analysis, sensitivity analysis, risk-adjusted discounting, the mean-variance criterion and
coefficient of variation, decision analysis, simulation, and stochastic dominance.
1.3 The techniques can be used with economic methods that measure economic performance, such as life-cycle cost analysis,
net benefits, the benefit-to-cost ratio, internal rate of return, and payback.
2. Referenced Documents
3
2.1 ASTM Standards:
E631 Terminology of Building Constructions
E833 Terminology of Building Economics
E917 Practice for Measuring Life-Cycle Costs of Buildings and Building Systems
E964 Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building Systems
E1057 Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and
Building Systems
E1074 Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems
E1121 Practice for Measuring Payback for Investments in Buildings and Building Systems
E1185 Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems
E1946 Practice for Measuring Cost Risk of Buildings and Building Systems and Other Constructed Projects
E2204 Guide for Summarizing the Economic Impacts of Building-Related Projects
2.2 Adjuncts:
4
Discount Factor Tables Adjunct to Practices E917, E964, E1057, E1074, and E1121
3. Terminology
3.1 Definitions—For definitions of terms general terms related to building construction used in this guide, refer to
TerminologiesTerminology E631 and ; and for general terms related to building economics, refer to Terminology E833.
4. Summary of Guide
4.1 This guide identifies related ASTM standards and adjuncts. It describes circumstances when measuring uncertainty and risk
may be helpful in economic evaluations of building investments. This guide defines uncertainty, risk exposure, and risk attitude.
1
This guide is under the jurisdiction of ASTM Committee E06 on Performance of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
Economics.
Current edition approved Nov. 1, 2011Oct. 1, 2015. Published December 2011October 2015. Originally approved in 1990. Last previous edition approved in 20072011
ε2
as E1369 – 07E1369 – 11. . DOI: 10.1520/E1369-11.10.1520/E1369-15.
2
For an extensive overview of techniques for treating risk and uncertainty, see Marshall, H.E., Techniques for Treating Uncertainty and Risk in the Economic Evaluation
of Building Investments, National Institute of Standards and Technology, Special Publication 757, 1988.
3
For referenced ASTM standards, visit the ASTM website, www.astm.org, or contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM Standards
volume information, refer to the standard’s Document Summary page on the ASTM website.
4
Available from ASTM International Headquarters. Order Adjunct No. ADJE091703. Original adjunct produced in 1984.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
1
---------------------- Page: 1 ----------------------
E1369 − 15
It presents nonprobabilistic and probabilistic techniques for measuring uncertainty and risk exposure. This guide describes briefly
each technique, gives the formula for calculating a measure where appropriate, illustrates the techniques with a case example, and
summarizes its advantages and disadvantages.
4.2 Since there is no best technique for measuring uncertainty and risk in every economic evaluation, this guide concludes with
a discussion of how to select the appropriate technique for a particular problem.
4.3 This guide describes in detail
...
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