Sensitivity testing of the CBA is a key element of risk assessment. The purpose of the sensitivity analysis is to acknowledge that there is always a degree of uncertainty and ultimately risk surrounding an initiative. Typically there are four sources of uncertainty surrounding an initiative:
• Capital costs;
• Construction duration and therefore opening date;
• Operating (including maintenance) costs; and
• Under and over estimation of the benefits (typically demand for the service).
A risk assessment should be undertaken to estimate the typical variations around these inputs with the sensitivity testing undertaken based on the variations. In addition, the sensitivity tests should include:
• Changes in global oil prices;
• Fluctuations in carbon prices; and
• Different population growth/decline scenarios.