ABSTRACT
Project appraisal as a forecasting exercise2 has to deal with the fact that investment projects, by sinking present resources in exchange for future expected benefits, are affected by risk and uncertainty. Uncertainty may be related to the technology used, people skills or commitment, financial resources, the economic, social and political context and the environment (a typical example of an uncertain event is the occurrence of an unpredictable natural disaster). The uncertainty can affect the project cost, leading, for example, to significant cost overruns; it can cause delays in the construction or the generation of benefits, or lower the expected revenues due to changes in the demand. The incidence of the uncertainty can greatly differ from one kind of project to another and can affect the project outcome in different ways. The capacity to identify the sources of uncertainty and mitigate the risks could play a crucial role in guaranteeing that the expected effects take place at the desired time.
