Accuracy of investment risk models varies

Financial analysis of proposed capital investments must include an assessment of risk as well as return. Four assessment techniques can be used to provide insight into the risk inherent in any capital investment project: breakeven analysis, sensitivity analysis, scenario analysis, and Monte Carlo simulation. The most complete picture of a project's stand-alone risk is provided by a Monte Carlo simulation, which generates a profitability probability distribution. The primary concern of most hospital decision makers, however, is the amount of risk the capital investment adds to the riskiness of the hospital in the aggregate.