Sensitivity Analysis in Engineering Economics

The following is a dicussion Agenda on Sensitivity Analysis (SA) in Engineering Economics (EE):

1. "What if" Analysis
• Possible results of an investment that increases fixed cost and reduce variable costs (re: Figure 11.1 Riggs et al. (1998, pg. 437).)
2.  Sensitivity of single proposal
• Single-parameter sensitivity, examined via a sensivity graph: (re: Figure 11.2 Sensitivity graph in Riggs et al. (1998, pg. 440) and Figure 11.4 Riggs et al. (1998, pg. 442).)
• Two-parameter sensitivity
3. Sensitivity of alternatives
4. Data considerations n Economic Analysis
• Sources of cost data
• Composition of cost traditionally used in manufacturing accounting system (re: Figure 11.11 in Riggs et al. (1998, pg. 455).)
• Sources of income data
• Life-cycle costing
• Postaudits

The following diagram captures the basic idea of sensitivity analysis:

Reference
Riggs, J.L., Bedworth, D.D. and Randhawa, S.U. (1998) "Chapter 11: Sensitivity Analysis" in Engineering Economics, McGraw-Hill