O'Brien Commercial

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Probabilities and Expected Value

A quantifiable method of risk analysis.  This method assigns probabilities to specific, possible investment outcomes, calculates an expected outcome for the investment based on these probabilities, and measures the likelihood that actual results will differ from the expected outcome.  This method of risk analysis can be applied directly to real estate investments.  It also can be used in conjunction with the forecasts generated through sensitivity analyses.  This technique requires that probabilities be assigned to possible outcomes.  Probabilities on the best-case, most-likely, and worst-case scenarios can be assigned to the resulting expected values for the return.  Variances also can be computed using the assigned probabilities.

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