SENSITIVITY ANALYSIS

Dian Ratri Cahyani (1606896981)

Joshua Lokatili (1606897012)
Muhamad Ivan Farhan (1606862854)
  Parameter is variables or factors that would affect the
cash flow, thus the analysis of estimation or stated
values need to be conducted

 Parameters are first cost, salvage value, AOC, estimated

life, production rate, and materials costs including loan
interest rate and the inflation rate
SENSITIVITY ON
VARIATION OF  Sensitivity analysis is the analysis to determine what
parameters that matter most which will make the
PARAMETERS biggest impact on the output of variables.

 MARR as parameter, as well as the other interest rates

are more stable from project to project. The analyst can
limit the range over which these type of parameters
vary.
 1. Determine which parameter of interest might vary
from the most likely estimated value.
2. Select the probable range and increment of variation
for the parameter
Steps to conduct 3. Select the measure of worth
4. Compute the results for each parameter
sensitivity analysis 5. Do the graphically drawing consist of the parameter
as the X-axis and measure of worth as the Y-axis
 EXAMPLE
 Solution: for point a (using MARR)
1. MARR is the parameter of interest
2. Select 5% increments to evaluate sensitivity to MARR; the probable range is from 10% up to 25%
3. Select PW as the measure worth
4. Set up the PW relation for 10 years. When MARR = 10%
 For b (using n years)
1. Asset life n is the parameter

2. Select the probable range from 8-12 years with an increased of 2 years on every increments
3. Select the PW as the measure worth
4. Set up the same PW relation with the part A
  Several parameters can be considered in one
alternative and using a single measure of worth

Sensitivity on  It is recommend to use the graph percentage change

for each parameter versus the measure of worth.
several
parameters  The graph itself usually called a spider graph
Spider Graph
  This approach allows us to study measure of worth and
alternative selection sensitivity within a predicted
range of variation for each parameter
 The concept of making three estimates for each
parameter:

1. Pessimistic
Three Estimates 2. Most likely
3. Optimistic estimate

 The most likely estimate is used for all other

parameters when the measure of worth is calculated for
one particular parameter/alternative
  An engineer is evaluating three alternatives for new
equipment at Emerson Electronics. She has made three
estimates for the salvage value, annual operating cost,
and life. The estimates are presented on an alternative-
by-alternative basis in Table 18–1. For example,
alternative B has pessimistic estimates of S = $500, AOC
EXAMPLE = $-4000, and n = 2 years. The first costs are known, so
they have the same value. Perform a sensitivity analysis
and determine the most economical alternative, using
AW analysis at a MARR of 12% per year.
  For each alternative in Table 18–1, calculate the AW
value of costs. For example, the AW relation for
alternative A, pessimistic estimates, is:
AW = -20,000(A/P,12%,3) - 11,000 = $19,327

 Table 18–2 presents all AW values.

 Figure 18–6 is a plot of AW versus the three estimates of
SOLUTION life for each alternative.
 Since the AW calculated using the ML estimates for
alternative B ($−8229) is economically better than even
the optimistic AW value for alternatives A and C,
alternative B is clearly favoured.