Valuation

The #2 Reason Why Project Values Get Revised Down

In an earlier post I argued that the #1 cause of downward project revisions in portfolio analysis is a phenomenon called "winner's curse", whereby the error in estimating project values, together with screening criteria, results in more negative surprises than positive ones. In this post, I'll talk about the #2 reason (which might be the #1 reason in some portfolios).

The #1 Reason Why Project Values Get Revised Down

A topic of considerable lament in portfolio management circles is the frequent downward revision of project valuations. Anecdotally, it just seems like news tends to bring the project value down more often than it pushes it up. Senior management often views this as something sinister, a sign of deception or flawed execution: "Last year you bozos told me this was a blockbuster!".

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