Sensitivity Analysis

September 16, 2025
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What is Sensitivity Analysis?

Sensitivity analysis is a method used in project management to determine how varying values of an input variable affect a particular outcome or result. It helps project managers understand the effects of uncertainty in project assumptions, costs, schedules, and other critical elements. By examining how small changes in inputs affect project outcomes, teams can identify which variables have the most influence and where to focus risk management efforts. This analysis supports better decision-making and improves project planning accuracy.

Key Points

  • Sensitivity analysis tests the robustness of project decisions by evaluating the impact of variable changes on results.
  • It is often used during project planning and risk assessment to explore possible scenarios.
  • The process typically involves changing one variable at a time while keeping others constant to measure its influence.
  • This method highlights which assumptions or inputs carry the most risk or uncertainty.
  • It helps stakeholders visualize how best- and worst-case scenarios could affect project success.
  • The results can guide budget allocations, resource planning, and contingency strategies.
  • Project managers can perform sensitivity analysis using simple spreadsheets or advanced simulation tools.

Related Terms

  • Project teams often use a risk register in conjunction with sensitivity analysis to document and assess potential project risks and their associated impacts.
  • Monte Carlo simulation is a technique that complements sensitivity analysis by assessing risk through multiple random simulations.
  • The critical path method may benefit from sensitivity analysis to understand how delays in specific tasks impact the overall schedule.
  • Cost-benefit analysis becomes more accurate when project managers use sensitivity analysis to test the reliability of input estimates.
  • Stakeholder analysis helps identify individuals whose interests may shift based on the outcomes revealed by sensitivity analysis.

Sensitivity Analysis: Example

A project manager is planning the launch of a new mobile app. The project budget depends heavily on the cost of third-party development services. To test this assumption, the manager conducts a sensitivity analysis by adjusting the developer rates up and down by 10 percent. The study shows that a slight increase in these rates would significantly raise total project costs, while a decrease would create budget savings. This insight allows the manager to negotiate fixed-rate contracts or allocate a contingency reserve.

Sensitivity Analysis: Best Practices

  • Identify key input variables early in the project to ensure effective focus of the analysis.
  • Use historical data and expert judgment to select reasonable input ranges.
  • Clearly document assumptions made during the analysis for transparency.
  • Visualize results using charts or graphs to communicate findings to stakeholders.
  • Integrate findings into risk management and decision-making processes to inform informed decisions.

Additional Resources

Sensitivity Analysis - Project Management: A Systems Approach to Planning, Scheduling, and Controlling     Sensitivity Analysis - Risk Management in Portfolios, Programs, and Projects: A Practice Guide

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