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Understanding Sensitivity Analysis in Projects

The document discusses sensitivity analysis, which allows measuring how the projected results of a project vary in response to changes in key parameters. It explains that the analysis identifies pessimistic, likely, and optimistic scenarios for an investment.

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5 views2 pages

Understanding Sensitivity Analysis in Projects

The document discusses sensitivity analysis, which allows measuring how the projected results of a project vary in response to changes in key parameters. It explains that the analysis identifies pessimistic, likely, and optimistic scenarios for an investment.

Translated by

ScribdTranslations
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

SENSITIVITY ANALYSIS

As a way to add information to the predicted results of the


the project can develop a sensitivity analysis that allows measuring
how sensitive is the evaluation carried out to variation
in one or more decisive parameters. The analysis of
the sensitivity of a project is a tool
easy to apply and can provide us
basic information for making a decision
according to the risk that one prefers to take.

Sensitivity analysis is a term frequently used in the


companies to make accurate decision-making regarding the
investment of their capitals, this analysis consists of the calculation of the new
cash flowsand the NPV (net present value, an indicator for the viability of a
project) in projects, businesses and others.

The importance of sensitivity analysis is manifested in the fact that the


values of the variables that have been used to carry out the evaluation
the project may have deviations with significant effects on the
measurement of your results.

The project evaluation will be sensitive to variations in one or more


parameters yes, when including this variation in the evaluation criterion used, the
initial decision changes. The sensitivity analysis reveals the effect they have.
the variations in profitability in the forecasts of the variables
relevant.

Sensitivity analysis and its possible


scenarios

The basis for the application of this method is


to be able to identify the possible scenarios of a
investment, these are classified as follows
manner

Pessimistic scenario: The worst outlook


for an investment, where the final outcome of
a project is a resounding failure.
Likely scenarios: As its name suggests, it would be the result
more likely to be assumed for the analysis of an investment, is a
Objective scenario and is based on the most possible information. It is
to say, it is an objective view of the situation.
Optimistic scenario: There is always the possibility of achieving more.
than expected, when the scenario is optimistic, it motivates the
investors to take the risk. Thus, they can realize that in
two investments where they would be willing to invest the same
quantity, the degree of irrigation and the benefits can really be
different; for this reason, these investments must be analyzed by their level of
uncertainty, but also for the possible gain that they may
to represent, for the greater the risk, generally, the greater the
earnings.

GLOSSARY.

FORECASTED.- To make a prediction about something based on


indications.

NPV - Net Present Value.

PANORAMA.- Overview of a situation.

UNCERTAINTY.- Lack of certainty or assurance

BIBLIOGRAPHY

[Link]
sensitivityd

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