Sensitivity analysis

Sensitivity analysis may be used to test the cost variables in the PSC. The extent of the analysis should reflect the materiality of key variables and the complexity of the project. Key variables that should be tested are for example:

■ service demand, for example due to demographic change;

■ inflation rates;

■ key operating costs;

■ residual values;

■ third party revenues.

Sensitivity analysis in the PSC is relevant in that it may provide some insight when comparing the PSC with private sector bids, some of which may have used different input assumptions than the PSC. The analysis also allows for a broad comparison between related costs; for example, if the construction commencement date is brought forward, pre-construction risks such as site suitability, planning and design risks may increase.