Sensitivity Analysis is also called what if analysis , it is the assessment of impact for an output of a system by changing its inputs.
Sensitivity analysis focuses analysing the effects of changes in key variables on the project’s IRR or NPV, the two most widely used measures of project worth.
In the economic analysis of the projects, there are also other aspects of project feasibility which may require sensitivity analysis. These include: 10
1.Demand analysis: to assess the sensitivity of the demand forecast to changes in population growth, per capita consumption, prices, etc.
2.Least cost analysis: to verify whether the selected least-cost alternative remains the preferred option under adverse conditions
3.Sustainability analysis: to assess possible threats to the sustainability of the project
4.Distributional analysis: to analyse whether the project will actually benefit the poor.
THE PURPOSE OF SENSITIVITY ANALYSIS 10
Sensitivity analysis is a technique for investigating the impact of changes in project variables on the base-case (most probable outcome scenario). Typically, only adverse changes are considered in sensitivity analysis.
The purpose of sensitivity analysis is:
1.to help identify the key variables which influence the project cost and benefit streams
2.to investigate the consequences of likely adverse changes in these key variables
3.to assess whether project decisions are likely to be affected by such changes
4.to identify actions that could mitigate possible adverse effects on the project.
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Project Planning and Management Study notes for M. plan Sem-II
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