What is the purpose of carrying out uncertainty analysis?

Carrying out uncertainty analysis primarily serves to assess the reliability of cost estimates. This process involves evaluating how various uncertainties — such as fluctuating market conditions, changes in regulations, and inherent project risks — may impact estimated costs and financial forecasts. By systematically exploring these uncertainties, organizations can better understand the range of possible outcomes, enabling them to make more informed decisions about budgeting, resource allocation, and project planning.

While estimating potential future cash flows, determining finance options, or identifying asset depreciation certainly play significant roles in asset management, these activities do not focus explicitly on evaluating the reliability of cost estimates. Instead, they are typically outcomes or components of broader financial strategies rather than the central intention of uncertainty analysis. This analytical method is crucial for building robust financial models that can withstand the test of unexpected variables, thereby significantly enhancing decision-making processes and strategic planning in asset management.