Investigating Project Profitability in Case of Uncertain Returns: a Simulation Approach

The selection of an appropriate investment option is one of the key components of corporate success. Project selection includes the evaluation of proposed projects in order to accept those that will contribute to achieving an organization’s objectives. The goal of this paper is to demonstrate the potential benefits of using the Monte Carlo simulation during the project evaluation process. The literature review provides insights into the benefits and drawbacks of various numerical and non-numerical models for project evaluation, as well as the key features of Monte Carlo simulations that can make this process easier. A practical application of the Monte Carlo simulation in the project evaluation process is presented using the Net Present Value (NPV) method, one of the most commonly used numeric selection models, in a well-known software environment. The proposed simulation approach proved to be useful, applicable and adaptable in the project evaluation process, especially when it comes to projects with high risk and uncertain returns.