Scenario analysis

Scenario analysis recomputes a project's NPV under a small set of internally consistent cases, such as worst, base and best, rather than varying one input at a time.

ByHoang TruongUpdated July 5, 2026

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A €200,000 project, discounted at 10% over five years, has an NPV of −€48,369 in a worst case, €65,355 in a base case, and €179,079 in a best case. Weighting each by its 25%, 50% and 25% probability and summing gives an expected NPV of €65,355.

Where it fits

TopicCapital Budgeting & Investment AppraisalCoreSubjectCorporate FinanceCore

The formula

LaTeX

E(NPV) = \sum_{i} p_i \times NPV_i

Variables

$p_{i}$: Probability assigned to scenario i (decimal)
$N P V_{i}$: Net present value computed under scenario i (€)

Combines the NPV computed under each named scenario into a single probability-weighted expected NPV.

Check yourself

PracticeCORE

Anchor Robotics is evaluating a €150,000 project using scenario analysis. The worst case (20% probability) has an NPV of −€50,636. The base case (30% probability) has an NPV of €15,606. The best case (50% probability) has an NPV of €114,970. What is the project's expected NPV across the three scenarios?

Select an answer to check your understanding.