Analysis of Project Risk
DOI link for Analysis of Project Risk
Analysis of Project Risk book
The sensitivity analysis provides an investor with an indicative margin of error, in the estimates of project parameters, outside of which the projected outcome is reversed and the investment decision would need to be revisited. The evolution of spread-sheet software has made it very convenient for decision makers to undertake sensitivity analyses and to focus on key variables that could prove critical to the project's success. To address some of the shortcomings identified with the sensitivity analysis, scenarios are developed by altering multiple variables simultaneously. A suitable probability distribution profile is selected in most cases the 'normal' distribution is considered owing to familiarity, convenience and relative accuracy to describe the variability profile of the project input variable. Probability distributions used in risk analysis help communicate the odds for various outcomes better.