In developing models for business, it is often helpful to be able to report standard financial measures. This can help managers understand the business implications of different policies, and also tie the modeling effort to something that is more familiar and better understood. In this chapter we will develop a relatively simple financial model for analyzing a single investment, and then link this model to the one developed in Chapter 5.
Undertaking a new investment is an activity that entails risk. So far, the models we have constructed have not explicitly incorporated any risk assessment but rather focuses on the nature of the internally generated dynamics. In many cases, however, understanding the ranges of behavior that can be generated by a model can be very helpful. In this chapter we will use the multivariate sensitivity analysis tools available in Vensim to assess financial risk.
