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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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