ASTM E1369-02

NOTICE: This standard has either been superseded and replaced by a new version or withdrawn.
Contact ASTM International (www.astm.org) for the latest information
Designation: E 1369 – 02
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 (e) indicates an editorial change since the last revision or reapproval.
4
1. Scope Discount Factor Tables, Adjunct to Practice E917
1.1 This guide recommends techniques for treating uncer-
3. Terminology
tainty in input values to an economic analysis of a building
3.1 Definitions—For definitions of terms used in this guide,
investment project. It also recommends techniques for evalu-
refer to Terminology E833.
atingtheriskthataprojectwillhavealessfavorableeconomic
2
outcome than what is desired or expected.
4. Summary of Guide
1.2 The techniques include breakeven analysis, sensitivity
4.1 This guide identifies related ASTM standards and ad-
analysis,risk-adjusteddiscounting,themean-variancecriterion
juncts. It describes circumstances when measuring uncertainty
and coefficient of variation, decision analysis, and simulation.
and risk may be helpful in economic evaluations of building
1.3 Thetechniquescanbeusedwitheconomicmethodsthat
investments.This guide defines uncertainty, risk exposure, and
measure economic performance, such as life-cycle cost analy-
risk attitude. It presents nonprobabilistic and probabilistic
sis,netbenefits,thebenefit-to-costratio,internalrateofreturn,
techniques for measuring uncertainty and risk exposure. This
and payback.
guide describes briefly each technique, gives the formula for
2. Referenced Documents calculating a measure where appropriate, illustrates the tech-
niques with a case example, and summarizes its advantages
2.1 ASTM Standards:
3
and disadvantages.
E833 Terminology of Building Economics
4.2 Since there is no best technique for measuring uncer-
E917 PracticeforMeasuringLife-CycleCostsofBuildings
3 tainty and risk in every economic evaluation, this guide
and Building Systems
concludes with a discussion of how to select the appropriate
E964 Practice for Measuring Benefit-to-Cost and Savings-
3 technique for a particular problem.
to-Investment Ratios for Buildings and Building Systems
4.3 This guide describes in detail how risk exposure can be
E1057 Practice for Measuring Internal Rate of Return and
measured by probability functions and distribution functions
Adjusted Internal Rate of Return for Investments in Build-
3 (see Annex A1). It also describes how risk attitude can be
ings and Building Systems
incorporated using utility theory and other approaches (see
E1074 PracticeforMeasuringNetBenefitsforInvestments
3 Annex A2).
in Buildings and Building Systems
E1121 Practice for Measuring Payback for Investments in
5. Significance and Use
3
Buildings and Building Systems
5.1 Investments in long-lived projects such as buildings are
E1185 Guide for Selecting Economic Methods for Evalu-
3 characterized by uncertainties regarding project life, operation
ating Investments in Buildings and Building Systems
and maintenance costs, revenues, and other factors that affect
2.2 ASTM Adjuncts:
projecteconomics.Sincefuturevaluesofthesevariablefactors
are generally not known, it is difficult to make reliable
1
economic evaluations.
This guide is under the jurisdiction ofASTM Committee E06 on Performance
of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
5.2 The traditional approach to project investment analysis
Economics.
has been to apply economic methods of project evaluation to
Current edition approved Oct. 10, 2002. Published November 2002. Originally
best-guess estimates of project input variables as if they were
published as E1369–90. Last previous edition E1369–98.
2
For an extensive overview of techniques for treating risk and uncertainty, see certain estimates and then to present results in single-value,
Marshall, Harold E.—Techniques for Treating Uncertainty and Risk in the Eco-
nomic Evaluation of Building Investments, National Institute of Standards and
Technology, Special Publication 757, 1988.
3 4
Annual Book of ASTM Standards, Vol 04.11. Available from ASTM Headquarters. Order PCN 12-509179-10.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959, United States.
1

---------------------- Page: 1 ----------------------
E1369–02
5
deterministic terms. When projects are evaluated without 6.1.6 Compute measures of worth and associated risk (see
regard to uncertainty of inputs to the analysis, decision makers Sections 7 and 8).
may have insufficient information to measure and evaluate the
6.1.7 Analyze res
...