Perspectives Paper: Managing and Communicating Value Uncertainty
Every valuation involves a degree of uncertainty — not because the process has failed, but because different reasonable methods, data, and assumptions can legitimately lead to different reasonable conclusions. Understanding this distinction is fundamental to building confidence in valuations and the professionals who produce them.
The IVSC Valuation Risk Working Group’s latest Perspectives Paper examines one of the most important — and most misunderstood — concepts in valuation practice: the difference between valuation risk and value uncertainty.
Valuation risk arises from errors, omissions, or inadequate processes within the valuation itself. It can and should be mitigated. Value uncertainty, by contrast, is an inherent feature of valuing complex assets and liabilities in real markets. Even a fully IVS-compliant valuation, conducted with rigour and care, may yield a range of credible outcomes.
In an era of heightened market volatility – shaped by geopolitical conflict, energy market disruption, rapid technological change, and evolving trade policy — understanding and communicating value uncertainty has never been more important.
This Perspectives Paper explores:
- The key sources of value uncertainty, including data limitations, model constraints, and assumption sensitivity
- The principles under IVS that guide valuers in navigating uncertainty
- Illustrative examples showing how narrow or wide value ranges arise in practice
- Practical tools and disclosure approaches for managing and communicating uncertainty transparently
A central message runs throughout: transparency around uncertainty strengthens confidence in valuations — it does not weaken it. The goal is not to eliminate uncertainty, but to ensure that users of valuations understand its nature, scale, and implications.
The paper also includes five consultation questions through which the IVSC invites input from stakeholders on how value uncertainty should be defined, disclosed, and addressed within IVS going forward.
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