Module 14: Sensitivity Analysis

SI-4251 Ekonomi Teknik

Muhamad Abduh, Ph.D.
Outline Module 14
 What is Sensitivity Analysis?
 Steps in Sensitivity Analysis
 Sensitivity Graph
 Spider Web
 Comparing Two or More Alternatives

14-2 SI-4251 Ekonomi Teknik Muhamad Abduh, Ph.D.

What is Sensitivity Analysis?
 Any economic analysis uses estimate of future happening
to assist decision makers, and the accuracy of prediction
of future outcome of a venture depends on the quality of
knowledge about the future.
 However, our ability to accurately predict the future is far
too limited, if not impossibly accurate. Therefore, the
estimate will likely be in error.
 Sensitivity analysis is a study to determine how
(economic) decision will be altered due to the variation
of values of economic factors

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What is Sensitivity Analysis?
 An alternative is said to be sensitive if the decision upon
the selection of that alternative depends on the changes
in the values of estimate.
 An alternative is said to be insensitive if the decision is
not altered with the change if values of estimate
 Sensitivity analysis allows decision makers to determine
how sensitive would their final decision be to changes in
values of estimates.

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Illustration
 Decision of investment depends on the future cash flow
(cash in – cash out). In turn, the cash flow itself depends
on the future economic condition; i.e. the actual interest
rate applied (and many others)
 A potential venture requires an initial investment of US$ 2.75
millions and annual O&M cost estimated at US$ 325.000. The
expected production rate is 20,000 per year, expected sale will
be 90% at the price of US$ 175 a piece. If the salvage value at
the end of 12 years is estimated at US$ 450,000 and the
interest rate is set at 10% p.a., would you consider this
opportunity?
 To answer this question one must have assurance that all
information is accurate

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Steps in Sensitivity Analysis
1. Determine factors that are most likely to vary from
estimated value
2. Select the probable range of variation of each factor
3. Select an economic evaluation method (present worth,
future worth, annuity, or rate of return) for each factor
4. Compute values based on variable of factors
5. Plot chart (if necessary)

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Sensitivity Graph
NET CASH FLOW
INCOME ( + )

0
LOSS ( - )

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Sensitivity Graph
NET CASH FLOW
INCOME ( + )

i
0 i*
LOSS ( - )

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Sensitivity Graph
NET CASH FLOW
INCOME ( + )

AOC
0 O&M*
LOSS ( - )

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Sensitivity Graph
NET CASH FLOW
INCOME ( + )

Yearly
0 Production
Vol*
LOSS ( - )

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Sensitivity Graph
NET CASH FLOW
INCOME ( + )

?
0
LOSS ( - )

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Spider Web
Present Worth
+6000
+5000 A

+4000
+3000 n
+2000
+1000
i
-40 -30 -20 -10 0 +10 +20 +30 +40
% error in estimate
- 1000
- 2000
- 3000
- 4000
- 5000
- 6000
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Comparing Two or More Alternatives
 The decision to select an alternative depends on how
sensitive the alternative given a set of decision range

(+) Alt B
Annual Equivalent Amount

Alt A
Alt C
0 N1 N2 N3
range alternative
n < N1 No alternative
N1 < n < N2 Alternative A
(-) N2 < n < N3 Alternative C
> N3 Alternative B
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Exercise
 Dua alternatif mesin produksi masing-masing mempunyai karakteristik sebagai berikut:
Mesin A Mesin B
Kapasitas produksi / tahun 550.000 unit 625.000 unit
Perkiraan produksi terjual 95% 97.5%
Nilai investasi awal Rp 18.750.000.000 Rp 19.200.000.000
Usia guna 8 tahun 8 tahun
Nilai jual lagi Rp 4.750.000.000 Rp 4.250.000.000
Harga jual produk / unit Rp 685.750 Rp 685.750
Biaya produksi langsung / unit Rp 125.800 Rp 110.000
Biaya produksi tidak langsung / tahun Rp 240.000.000 Rp 210.000.000
Metoda depresiasi: Garis lurus Garis lurus

 Lakukan sensitivity analysis terhadap IRR; variasi harga jual produk +/- dua digit terahir NIM saudara x
Rp 100,- (Gunakan aplikasi komputer, spreadsheet)

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