• In evaluating bids, two types of sensitivity tests should be performed:
- Uncertainty: Uncertainty is distinct from risk and some of the costs of uncertainty are normally transferred to the private sector. To assess the impact of uncertainty, an appropriate sensitivity analysis on the discount rate would likely be +/- 50 to 100 basis points; and
- Break Even Analysis: The break-even discount rate should be calculated to consider the overall sensitivity of the VFM proposition to changes in the discount rate.
• In conducting these sensitivity tests, regard should also be had to the extent to which rates have moved since the risk free rate was determined.
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Published: February 2009