Lecture_9_2009 - Project outcomes depend on uncertain...

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Risk and Sensitivity Analysis (Chapter 11) Project outcomes depend on uncertain future events Examples? 1
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Sensitivity Analysis For risk assessment Identify variables that most influence a project’s net benefits and quantify the extent of their influence Test variations in selected costs, benefit variables on the project’s NPV e.g. what if the price of output is 30% more or 30% less? 2
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Sensitivity Analysis 1. Variable by variable 2. Scenario approach (treats variables in groups) 3
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Sensitivity analysis: Variable-by-variable approach 1. List all variables that are important for the analysis 2. For each variable, identify a range of possible values .e.g. three possible values for each variable. You can have an “optimistic”, “pessimistic” ad “most likely” estimates for each of the variables. 3. Calculate the appropriate result (e.g. NPV) using each possible value of the variable holding all other variables at their expected values 4
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Lecture_9_2009 - Project outcomes depend on uncertain...

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