Sensitivity

Analysis

IT Risk Management
  What is Sensitivity Analysis in Project Risk
Management?
 Example on Sensitivity Analysis….
Outline….
 Types of Sensitivity Analysis……
 Advantages & Disadvantages
  Sensitivity analysis is also called What-if
analysis

What is
Sensitivity
Analysis?.....
.
 Sensitivity analysis is the assessment of the impact for
an output of a system by changing its inputs
  In budgeting process there are always variables that are uncertain
such as
interest rates
inflation rates
Future tax rates

Example other variables may not be known with

great precision
on
Sensitivity
Analysis…..  Sensitivity analysis answers the question,

"if these variables deviate from expectations, what will the

effect be (on the business, model, system, or whatever is
being analyzed), and which variables are causing the largest
deviations?"
  Partial Sensitivity Analysis
In a partial sensitivity analysis, you select one variable, change
its value while holding the values of other variables constant.

Types of  Best-case and worst-case scenarios

Sensitivity Best- and worst-case scenarios establish the upper (best-case)
Analysis… and lower (worst-case) boundaries of a cost-benefit study’s
results.
.
This type of sensitivity analysis shows how a broad range of a
program or policy’s possible outcomes affect the bottom line.
 To Perform
Best Case
Worst Case Analysis
Analysis

Cont.
… Use all of the Use all of the least-
most-favorable favorable
assumptions assumptions
  Break-even analysis

If you are unable to estimate a policy’s most likely effects

or cannot find comparable studies to help determine its
best-case and worst-case scenarios,
Cont.
you can use
…
  Monte Carlo analysis

You can use Monte Carlo analysis to

examine multiple variables simultaneously and

Cont. simulate thousands of scenarios, resulting in a range of
… possible outcomes and the probabilities that they will
occur.
  Simplicity

 Directing Management Efforts

Advantages
 Ease of being Automated

 As a quality Check
  It does not provide clear cut results

Disadvantages
 Not a solution in standalone form