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Sensitivity Analysis.


pdf icon Sensitivity Analysis. (327 K)
Marshall, H. E.

Technology Management Handbook. Chapter 8.12, CRC Press LLC, Boca Raton, FL, Dorf, R. C., Editor, 8/59-63 p., 1999 AND Engineering Handbook. Chapter 187, CRC Press, Inc., Boca Raton, FL, Dorf, R. C., Editor, 1962-1967 p., 1996, 1999.

Keywords:

sensitivity analysis; heating equipment; commercial buildings

Abstract:

Sensitivity analysis measures the impact on project outcomes of changing one or more key input values about which there is uncertainty. For example, a pessimistic, expected, and optimistic value might be chosen for an uncertain variable. Then an analysis could be performed to see how the outcome changes as each of the three chosen values is considered in turn, with other things held the same. In engineering economics, sensitivity analysis measures the economic impact resulting from alternative values of uncertain variables that affect the economics of the project. When computing measures of project worth, for example, sensitivity analysis shows just how sensitive the economic payoff is to uncertain values of a critical input, such as the discount rate or project maintenance costs expected to be incurred over the project's study period. Sensitivity analysis reveals how profitable or unprofitable the project might be if input values to the analysis turn out to be different from what is assumed in a single-answer approach to measuring project worth.