What Is Sensitivity Analysis?

Sensitivity analysis is one of the commonly used methods for analyzing uncertainty in the economic evaluation of investment projects. From the multiple uncertain factors, one by one, find out the sensitive factors that have an important impact on the economic benefit indicators of investment projects, and analyze and measure their impact and sensitivity on the economic benefit indicators of the project, and then judge the project's ability to bear risks. . If a small change in a parameter can cause a large change in the economic benefit index, this parameter is called a sensitivity factor, otherwise it is called a non-sensitivity factor. The disadvantage of this analysis method is that only one factor is allowed to change at a time while other factors are assumed to be unchanged, which may be inconsistent with the actual situation.

Sensitivity analysis

Sensitivity analysis is one of the commonly used methods for analyzing uncertainty in the economic evaluation of investment projects. From the multiple uncertain factors, one by one, find out the sensitive factors that have an important impact on the economic benefit indicators of investment projects, and analyze and measure their impact and sensitivity on the economic benefit indicators of the project, and then judge the project's ability to bear risks. . If a small change in a parameter can cause a large change in the economic benefit index, this parameter is called a sensitivity factor, otherwise it is called a non-sensitivity factor. The disadvantage of this analysis method is that only one factor is allowed to change at a time while other factors are assumed to be unchanged, which may be inconsistent with the actual situation.

Chinese name

Sensitivity analysis

Steps

No formal data, ignore market objective conditions, etc.

Advantages

Instruct search directions, make emergency plans, etc.

Sensitivity analysis

Sensitivity analysis means from the perspective of quantitative analysis

The formula for calculating the profit sensitivity index is:

The profit sensitivity index of any I factor = the base of the intermediate variable of the factor ÷ the base of the profit × 100%

have to be aware of is,

1. Determine the sensitivity analysis indicators

The object of sensitivity analysis is specific technical solutions and the economic benefits they reflect. Therefore, certain economic benefit evaluation indicators of technical solutions, such as

The arrangement of profit sensitivity indicators has the following rules:

(1) The sensitivity index of the unit price is always the highest;

(2) The sensitivity index of sales volume cannot be the lowest;

(3) The difference between the sensitivity index of unit price and the sensitivity index of unit variable cost is equal to the sensitivity index of sales volume;

(4) The difference between the sales volume sensitivity index and the fixed cost sensitivity index is equal to 1.

2. Investment sensitivity analysis

The sensitivity analysis of investment is a sensitivity analysis method that analyzes and predicts the influence of relevant factors on the main economic evaluation indicators such as net present value and internal rate of return. The main purpose of investment sensitivity analysis is to reveal the degree of influence of changes in relevant factors on investment decision evaluation indicators, so as to determine sensitive factors and grasp the main contradictions.

The analysis of investment sensitivity generally includes two aspects: one is to calculate the degree of influence of relevant factors on the net present value and the internal rate of return; the other is to calculate the limits of the relevant factors.

The calculation and analysis of the degree of influence of factors on the net present value and internal rate of return can be carried out using the total method and the difference method.

The calculation and analysis of the change limits of factors can be carried out by using the critical limit analysis method of adverse changes of each factor

Sensitivity analysis

The role of sensitivity analysis 1. Determine the sensitive factors that affect the economic benefits of the project. Find out the most influential and sensitive main variable factors, further analyze, predict or estimate the degree of influence, find the source of uncertainty, and take corresponding effective measures.

2. Calculate the scope of changes in project economic benefit evaluation indicators caused by changes in major variables, so that decision makers can fully understand the possible changes in economic benefits of investment projects in construction projects, in order to reduce and avoid the impact of adverse factors, and improve and increase project investment effect.

3. Through the comparison of the sensitivity of various schemes, distinguish between the schemes with high sensitivity or low sensitivity, and choose the project with low sensitivity, that is, low risk, as the investment scheme.

4. Through the analysis of the most favorable and the most unfavorable economic benefit changes, it is possible for investment decision makers to predict the degree of risk that may occur, and to take some control measures or find alternatives to the original plan, and finally determine the feasible The investment plan provides a reliable basis for decision-making.

Advantages and disadvantages of sensitivity analysis

advantage:

1. Provide information for decision-making

2. Indicate the search direction

3. Make emergency plans

Disadvantages:

Without formal data, reliable parameter changes cannot be provided. Calculate from formula only, and ignore the objective conditions of the market.

Sensitivity analysis applications

(1) Determine specific economic benefit evaluation indicators as the object of sensitivity analysis. There are multiple economic effect indicators for a project, such as net present value, net annual value, internal rate of return, and investment payback period. However, for a specific project, it is not necessary to perform sensitivity analysis on all indicators, because different projects have different characteristics and requirements. There are two principles for selection: 1) The indicators of sensitivity analysis should be consistent with those of deterministic analysis;

2) When there are many indicators used in deterministic economic analysis, one or several of the most important indicators that can best reflect the economic benefits of the project and the economic rationality of the project should be selected as the object of sensitivity analysis. The most commonly used indicators for sensitivity analysis are dynamic indicators such as internal rate of return and net present value. This article uses the net present value as an indicator of sensitivity analysis.

(2) Selection of Uncertainty Factors to be Analyzed. There are many uncertainties that affect the economics of power grid planning schemes. Strictly speaking, almost all factors that affect the decision of planning projects have some degree of uncertainty, but in fact, Sensitivity analysis is not required for all uncertainties. Because, although some factors are uncertain, they have little effect on economic benefits. In general, the following principles can be followed: identify those that account for a large proportion of costs and benefits, and other factors that are expected to have a greater impact on the economic impact evaluation indicators of the planned project, and at the same time throughout the life of the planned project The factors that may undergo large changes or the accuracy of the data used in the deterministic analysis as sensitivity factors.

After analysis, it is known that the factors that have a greater impact on the economics of power grid planning programs are: electricity prices, investment in fixed assets, and grid operating costs.

(3) Determining the sensitivity of economic evaluation indicators to various sensitive factors The sensitivity of economic planning to uncertain factors in power grid planning solutions can be expressed as: when a certain factor or multiple factors change at the same time, the Degree of change. The commonly used calculation method is to assume that other factors are fixed except the sensitivity factors, and then recalculate the relevant economic effect evaluation indicators according to the changes in the sensitivity factors, and compare them with the original indicator values to obtain the degree of change. , So that you can get the sensitivity of the indicator to this uncertainty.

(4) Find out the most sensitive factors of the project through analysis and comparison. According to the results of the calculation and analysis in the previous step, compare the different changes in the same economic effect evaluation index caused by each sensitive factor under the same change, and choose which causes the change The factor with the largest amplitude is the most sensitive factor; the factor that causes the smallest change is the insensitive factor.