Settlement Offer Evaluator
Compare a settlement offer to going to trial by modeling expected value, legal costs, time to resolution, and risk. Use the side‑by‑side breakdown to see which path looks stronger under your assumptions.
Settlement vs trial comparison formulas
The settlement offer evaluator uses transparent formulas to compare accepting a settlement to pursuing trial. It focuses on net present value (NPV), expected value, and risk adjustments so you can see how each assumption affects the decision.
1. Present value of settlement
Settlement amount = S
Settlement legal costs = Cs
Time to settlement (years) = Ts
Discount rate (decimal) = r
Net settlement cash flow:
NetSettlement = S − Cs
Present value of settlement:
PV_Settlement = NetSettlement ÷ (1 + r)^Ts
If you set the discount rate to 0%, the present value equals the net settlement amount. When you use a positive discount rate, money received sooner is worth more than money received later.
2. Expected present value of trial
Potential trial award = A
Probability of winning at trial (decimal) = p
Trial legal costs = Ct
Time to trial (years) = Tt
Discount rate (decimal) = r
Additional risk penalty (decimal) = k
Expected trial cash flow before risk penalty:
ExpectedTrial = (A × p) − Ct
Risk‑adjusted expected trial cash flow:
RiskAdjustedTrial = ExpectedTrial × (1 − k)
Present value of trial:
PV_Trial = RiskAdjustedTrial ÷ (1 + r)^Tt
The risk penalty is an optional adjustment that reflects non‑financial risk: stress, uncertainty, and the chance that things go worse than expected. Setting it to 0% removes this adjustment.
3. Comparison metric
Difference in net present value:
NPV_Diff = PV_Trial − PV_Settlement
If NPV_Diff is positive, the trial path has a higher risk‑adjusted present value than the settlement path under your assumptions. If it is negative, the settlement path looks more attractive.
These formulas are intentionally simple and do not capture every nuance of litigation. They give you a structured way to think about settlement vs trial in terms of expected value, costs, time, and risk, which you can then refine with your attorney’s guidance.
How to think about settlement vs trial decisions
Deciding whether to accept a settlement or pursue trial is rarely straightforward. You’re balancing money, time, risk, and emotional bandwidth. The settlement offer evaluator doesn’t tell you what to do, but it turns your assumptions into clear numbers so you can see how each path behaves under different scenarios.
Settlement: certainty and speed
Settlement offers typically trade a lower, more certain amount for faster resolution and reduced risk. When you accept a settlement, you know the amount, the approximate timing, and the legal costs to finalize the agreement. That certainty has value, especially if you need funds sooner or want to avoid the stress of litigation.
In the tool, you capture this by entering the settlement amount, legal costs to settle, and time to settlement. The calculator then discounts the net amount to reflect the value of money over time. If you set the discount rate to 0%, you’re effectively saying you care only about nominal dollars, not timing.
Trial: upside and risk
Trial offers potential upside: you might win more than the settlement offer, or even much more. But you also face the risk of losing, higher legal costs, and a longer timeline. To model this, you estimate the potential trial award, the probability of winning, and the legal costs if you go to trial.
The evaluator multiplies the award by the probability of winning to get an expected value, subtracts trial costs, and then optionally applies a risk penalty. This penalty is a way to reflect non‑financial risk—uncertainty, stress, and the chance that things go worse than your best estimate. Finally, the tool discounts the risk‑adjusted expected value for the time until trial.
Worked example
Imagine you receive a settlement offer of $25,000. Your attorney estimates $4,000 in legal costs to settle and expects the settlement to finalize in 6 months. You also have the option to go to trial, where the potential award is $60,000, with a 40% chance of winning, $15,000 in trial costs, and an expected trial date 2 years away. You choose a 6% discount rate and a 5% risk penalty.
- Net settlement: $25,000 − $4,000 = $21,000. Present value at 6% over 0.5 years is slightly less than $21,000.
- Expected trial cash flow: (60,000 × 0.40) − 15,000 = $9,000.
- Risk‑adjusted trial cash flow: 9,000 × (1 − 0.05) = $8,550.
- Present value of trial at 6% over 2 years is lower than $8,550.
The tool will show both present values and the difference. In this example, the settlement might actually be more attractive than the trial path once you factor in costs, time, and risk—even though the headline trial award is higher.
Using the tool to explore scenarios
One of the most powerful ways to use the evaluator is to run multiple scenarios:
- Increase or decrease the probability of winning to see how sensitive the decision is to that estimate.
- Adjust trial costs to reflect best‑case and worst‑case legal fee scenarios.
- Change the discount rate to reflect your personal time preference or opportunity cost.
- Set the risk penalty to 0% to see a “pure” expected value comparison, then add a penalty to reflect your risk tolerance.
By exporting the results, you can share them with your attorney and discuss which assumptions feel realistic and which are too optimistic or pessimistic. The goal isn’t to find a perfect number, but to make the trade‑offs visible.
Practical tips
- Use conservative estimates for trial costs and probabilities; it’s better to be cautious than surprised.
- Remember that discount rate and risk penalty are personal—someone with urgent financial needs may value certainty more highly.
- Treat the tool as a conversation starter with your attorney, not a decision engine.
- Revisit the comparison if new information emerges, such as updated cost estimates or changes in case strength.
When you can see settlement and trial side by side, with numbers that reflect your own assumptions, the decision becomes less abstract. You’re not just reacting to a single offer—you’re weighing two paths with clarity and intention.
Frequently Asked Questions
How should I choose the probability of winning at trial?
Probability of winning is inherently uncertain. Use your attorney’s qualitative assessment as a starting point and consider modeling a range (for example, 30–50%) rather than a single number. The tool helps you see how sensitive the decision is to this assumption.
What discount rate should I use?
A common starting point is to use a rate similar to your expected investment return or borrowing cost, often between 3% and 10%. Higher rates place more value on money received sooner. You can also set the rate to 0% if you want to ignore time value and focus purely on expected dollars.
What is the risk penalty and why use it?
The risk penalty is an optional percentage reduction applied to the expected trial value to reflect non‑financial risk: stress, uncertainty, and the possibility that things go worse than your best estimate. If you’re comfortable with risk, you can set it to 0%. If you’re risk‑averse, a modest penalty can better reflect your preferences.
Does the tool account for appeals or post‑trial delays?
The basic model assumes a single time to trial and payment. If appeals or delays are likely, you can increase the time to trial or run separate scenarios with longer timelines to see how they affect present value.
Is this evaluator a substitute for legal advice?
No. The tool is an educational aid that helps you visualize settlement vs trial trade‑offs. It does not interpret your case, predict outcomes, or replace professional legal advice. Always rely on your attorney when making decisions.
Can I use this for multiple settlement offers?
Yes. You can run the evaluator separately for each offer and export the results. Comparing multiple settlement scenarios against the same trial assumptions can clarify which offer is most aligned with your goals and risk tolerance.
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Information on this site is for educational purposes only and is not financial, tax, or legal advice. Calculations are estimates and may not reflect actual results. See our Privacy Policy and Disclaimer.