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Risk and Uncertainty
Sensitivity analysis
Sensitivity analysis takes each uncertain factor in turn, and calculates the change
that would be necessary in that factor before the original decision is reversed.
Typically, it involves posing ‘what-if’ questions.
Strengths: there is no complicated
theory to understand; It identifies
areas which are crucial tp the
success of the project. If the project
is chosn those areas can be
carefully monitored.
Weaknesses: it assumes that changes
to variables can be made independently,
and only identifies a variable needs to
change; it does not look at the
probability of such a change.
Illustrations and further practice
Now try Illustration 1 ‘Sensitivity Analysis’ on Chapter 7.
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