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Decision Analysis for Managers by David Charlesworth

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Implications for the Manager

A tornado diagram is a useful picture of the relative effects of uncertainties upon the measure of value (usually NPV). Knowing which uncertainties are important allows you to focus your attention on what is important. Many times experts will disagree—sometimes passionately—about the ranges that should be associated with your uncertainties. If—using the widest possible assessments between the p10 and p90—the uncertainty is low on the tornado, this can help the experts to more quickly agree on how the uncertainty should be approached.

The first few times you develop a tornado graph in Excel will take some time, but after you’ve done two or three, you can set them up reasonably quickly. And, as we noted earlier, completing ...

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