This concept is designed to assist decision-makers to identify the variables which affect cash-flow forecasts and expose inappropriate projections.
Sensitivity Analysis Definition
Sensitivity analysis is defined as “the study of how the uncertainty in the output of a model (numerical or otherwise) can be apportioned to different sources of uncertainty in the model input” (Saltelli et al., 2004). In other words, sensitivity analysis evaluates the probability that a project can be implemented successfully and the risks involved in undertaking the project. It is designed to identify the key value drivers and risk exposures of a project within a model.
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Sensitivity Analysis References (4 of up to 20) *
- Anderson, D.R., Sweeney, D.J., Williams, T.A., Camm, J.D., and Martin, K. (2011) An Introduction to Management Science: Quantitative Approaches to Decision Making. South Western Ceanage Learning, USA.
- Antrill, P. and McLaney, E. (1994) Management Accounting: An Active Learning Approach. Blackwell Publications, MA, USA.
- Flyvbjerg, B., Mette, S.H., and Søren, B. (2002) Underestimating Costs in Public Works Projects: Error or Lie?”. Journal of the American Planning Association, Vol. 68(3), pp. 279-295.
- Grice, J. (2008) The Green Book. HM Treasury, London, UK.
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