Abstract
Abstract
Investments on capital goods are assessed with respect to the life cycle profit as well as the economic lifetime of the investment. The outcome of an investment with respect to these economic criteria is generally non‐deterministic. An assessment of different investment options thus requires probabilistic modelling to explicitly account for the uncertainties. A process for the assessment of life cycle profit and the evaluation of the adequacy of the assessment is developed. The primary goal of the assessment process is to aid the decision‐maker in structuring and quantifying investment decision problems characterized by multiple criteria and uncertainty. The adequacy of the assessment process can be evaluated by probabilistic criteria indicating the degree of uncertainty in the assessment.
Bayesian inference is used to re‐evaluate the initial assessment, as evidence of the system performance becomes available. Thus authentication of contracts of guarantee is supported. Numerical examples are given to demonstrate features of the described life cycle profit assessment process. Copyright © 2001 John Wiley & Sons, Ltd.