-What is Sensitivity Analysis in Project Risk Management? -Example on Sensitivity Analysis…. -Types of Sensitivity Analysis…… -Advantages & Disadvantages

1. SensitivityAnalysis
IT Risk Management

2. Outline….
 What is Sensitivity Analysis in Project Risk
Management?
 Example on Sensitivity Analysis….
 Types of Sensitivity Analysis……
 Advantages & Disadvantages

3. What is
Sensitivity
Analysis?......
Sensitivity analysis is also called What-if
analysis
 Sensitivity analysis is the assessment of the impact for
an output of a system by changing its inputs

4. Example on
Sensitivity
Analysis…..
 In budgeting process there are always variables that are uncertain
such as
 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?"
interest rates
Future tax rates
inflation rates
other variables may not be known with
great precision

5. Types of
Sensitivity
Analysis….
 Partial Sensitivity Analysis
In a partial sensitivity analysis, you select one variable, change
its value while holding the values of other variables constant.
 Best-case and worst-case scenarios
Best- and worst-case scenarios establish the upper (best-case)
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.

6. Cont.…
To Perform
Worst Case Analysis
Best Case Analysis
Use all of the
most-favorable
assumptions
Use all of the least-
favorable
assumptions

7. Cont.…
 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,
you can use

8. Cont.…
 Monte Carlo analysis
You can use Monte Carlo analysis to
examine multiple variables simultaneously and
simulate thousands of scenarios, resulting in a range of
possible outcomes and the probabilities that they will
occur.

9. Advantages
 Simplicity
 Directing Management Efforts
 Ease of being Automated
 As a quality Check

10. Disadvantages
 It does not provide clear cut results
 Not a solution in standalone form