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Risk and uncertainty

220.Risk and uncertainty are two ends of a continuum: if we know the distribution of outcomes then we call it risk, if not then we call it uncertainty. In practice, the probability distribution around a cost or benefit estimate is seldom known with certainty, which means we are somewhere along that continuum. The distinction between these terms is therefore not so significant in most situations. In this guide the terms will be used interchangeably.

221.Because CBA may depend to a large extent on forecasting variable values, all costs and benefits are uncertain (or risky) to a degree. Uncertainty is best expressed in the CBA by using confidence intervals or ranges rather than point estimates.

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