Sensitivity Analysis

5 minutes 5 Questions

Sensitivity Analysis is a technique used to evaluate the impact of changes in individual risk factors on the overall project. This approach identifies which risk factors have the greatest effect on project outcomes, allowing focus to be placed on those with the highest potential impact. This is don…

Guide on Sensitivity Analysis

Sensitivity Analysis is a significant approach used in Project Risk Analysis as outlined in the PMBOK Guide Seventh Edition.

Why Sensitivity Analysis is Important?
It is mainly used to predict the outcome of a decision if a situation turns out to be different compared to the key predictions or assumptions. It also helps in identifying risks and mitigating them proactively.

What is Sensitivity Analysis?
Sensitivity Analysis is a technique used to understand how various sources of uncertainty in a mathematical model contribute to the model's overall uncertainty. It helps to determine which variable, if changed, can have the most significant impact on the project outcome.

How Sensitivity Analysis Works?
It works by adjusting the variables one by one and observing the change in the output. The variable that causes the most significant change in the output is considered the most sensitive.

How to Answer Questions on Sensitivity Analysis in an Exam?
1. Understand the basic concept and procedure of Sensitivity Analysis.
2. Know how it contributes to Risk Management by identifying the most sensitive variables.
3. Understand its application in real-world project scenarios.

Exam Tips: Answering Questions on Sensitivity Analysis
For successful answers in exams, remember that Sensitivity Analysis is about identifying 'which variable will have the most potential impact on the project'. Link it with risk potentials and uncertainty. Practice identifying the most sensitive variables in different scenarios.

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PMP - Sensitivity Analysis Example Questions

Test your knowledge of Sensitivity Analysis

Question 1

In a research & development project focused on developing a new sustainable energy source, numerous factors can affect the project's outcome, including research methodologies, resource availability, and regulatory approval process. Which technique can the project manager use to understand the effect of each variable separately on the project outcome?

Expected Monetary Value (EMV) Analysis Discrete Event Simulation Sensitivity Analysis Concept Mapping

Correct Answer: Sensitivity Analysis

The technique that fits the requirement best is 'Sensitivity Analysis'. This technique is used to understand how different values of an independent variable impact a particular dependent variable under a given set of assumptions. In this case, it can help ascertain the effect of each variable, such as research methodologies, resource availability, and regulatory approval process on the project outcome. 'Discrete Event Simulation', while useful for modeling the operation of a system as a discrete sequence of events, does not typically isolate the effect of each variable separately on the project outcome. 'Concept Mapping' usually helps in structuring and organizing knowledge, but it does not evaluate the effect of separate variables on the outcome. 'Expected Monetary Value (EMV) Analysis' is an economic analysis technique, which is more relevant for decision making under situations of uncertainty, rather than understanding the effect of each variable separately.

Question 2

As a project manager in a financial services firm, you are assessing the impact of changes in market interest rates on the project cost. What type of analysis should you use?

Cost-Benefit Analysis Sensitivity Analysis Stakeholder Analysis Balance Scorecard Analysis

Correct Answer: Sensitivity Analysis

The question asks about assessing the impact of changes in market interest rates on project cost. This calls for Sensitivity Analysis, which is used to understand how different changes in the inputs of a financial model can impact the output. This is suitable since changes in market interest rates can make a big difference in the total cost of a project. The other options aren't as applicable: Cost-Benefit Analysis is used to determine the advantages and disadvantages of moving forward with a business proposal or project, not necessarily related to interest rate changes. A Balance Scorecard Analysis is a strategic planning and management system used extensively in business and by organizations worldwide, not specific to interest rate impacts. Lastly, Stakeholder Analysis is the systematic identification, evaluation, and prioritization of everyone who can influence, or has an interest in, a project, policy, or program. It's not about evaluating the impact of interest rate changes on project costs.

Question 3

A project manager is observing the correlation between sales growth and advertisement budget. He aims to understand the extent of sensitivity of one variable over the other. What sort of analysis should the project manager undertake?

Root Cause Analysis Impact Analysis Sensitivity Analysis Stakeholder Analysis

Correct Answer: Sensitivity Analysis

Sensitivity Analysis is the correct choice as it helps in studying how the uncertainty in the output of a model can be apportioned to different input sources, and in this case, studying the change in the sales growth (the output) for changes in the advertisement budget (the input). Root Cause Analysis is not correct because it is used to identify the main cause of a problem, not to measure the relation between two variables. Stakeholder Analysis is not correct because it is about identifying the needs and concerns of different stakeholders, not to evaluate the impact of a change in one variable over another. Lastly, Impact Analysis is not right because it identifies the potential consequences of an action in a project, not to measure the degree to which one output depends upon multiple input variables.

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