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Sensitivity Analysis Benefits

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How would companies benefit from running sensitivity analysis?How do they determine the most relevant items to evaluate?

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Solution Summary

This solutions outlines the benefits of sensitivity analysis and steps to determining uncertainty in input variables are highlighted.

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Any project involves an estimate of costs and benefits, inputs to which are subject to uncertainties. For example for an uncertain variable, there could be pessimistic, expected and optimistic values
• Sensitivity analysis helps companies examine how the outcome of benefit-cost analysis changes when there are variations in inputs, assumptions or the manner in which analysis was initially set up
• Sensitivity analysis helps to measure economic impact resulting from alternative values of uncertain variables that affect the economics of the project ...

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