Risk and Uncertainty (3)

Question 1

What is a sensitivity analysis?

Answer 1

Describe any technique whereby decision options are tested for their vulnerability to changes in any “variable”

Question 2

Examples of a variable in sensitivity analysis?

Answer 2

Expected sales volume

Sales price per unit

Material costs

Labour costs

Question 3

Approach to sensitivity analysis (Calculating)

Answer 3

Calculating maximum percentage change in variable before decision would change

Question 4

Approach to sensitivity analysis (Assessing)

Answer 4

Assessing if decision would change if a variable changed by x% of estimate

Question 5

What does sensitivity analysis concentrate on?

Answer 5

Management attention on variables that are most important for the decision under review

Question 6

Sensitivty analysis strength (understand)

Answer 6

Easy to understand

Question 7

Sensitivty analysis strength (highlights variables)

Answer 7

Highlights key variables which are crucial to success of the project, once identified these can be closely monitored

Question 8

Sensitivty analysis limitations (multiple variables)

Answer 8

Assumes all changes are independent. In reality multiple variables are likely to chance simultaneously

Question 9

Sensitivty analysis limitations (amount of change)

Answer 9

Only identifies the amount of change required in one variable, does not assess probability of that change occurring

Question 10

Sensitivty analysis limitations (decision rule)

Answer 10

Does not offer a clear decision rule

Question 11

What is a simulation model?

Answer 11

Numbers are linked to probability distributions so number chosen would occur with the same probability that real-life event would occur

Question 12

Where can simulation be used?

Answer 12

For estimating queues in shiops, as this depends on two uncertainties