Sensitivity analysis is useful in consideration of the consequences of using faulty data in, say, forecasting costs/cash flows. It involves speculation on alternative scenarios and estimating the accuracy of data, e.g. Optimistic estimate - Pessimistic estimate - most likely estimate.

The graph shown above is used in sensitivity analysis. Steeper curves indicate a higher degree of sensitivity to deviations from the original estimates.

References

• JL Riggs, Production Systems, Wiley, 1987. pp147-149

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