Building a credible model in a lost profits case

“Quite often we’re assuming liability when we’re being asked to calculate lost profits,” James O’Brien and Robert Gray (Parente Beard) told listeners during the recent BVR webinar “Lost Profits Calculations: Methods & Procedures” —the first installment of BVR's Webinar Series on Damages Essentials.

The two experts listed four important factors when connecting causation and the burden of proof with the liability of the damages:

  • Credible lost profits include economic damages that are natural, proximate, probable, or a direct consequence of an act, excluding remote consequences
  • Courts generally rule that Plaintiffs must establish lost profits damages to a reasonable degree of certainty
  • Calculations can’t be speculative, vague or contingent or some unknown, unreasonable, or unforeseeable factor
  • Financial models and analyses should be supportable by relevant facts, data, and reasonable assumptions.

“It’s easy for us to get into Excel and build a model but how does that model relate to the liability issues and the data that supports that calculation,” asks O’Brien.

O’Brien and Gray also presented a checklist of elements requiring analyses in calculating net lost profit damages, which BVWire readers can get here.