The financial feasibility assessment for a project depends upon uncertain factors and assumptions that are an outcome of other technical studies. Therefore, it is always useful to conduct sensitivity and scenario analysis of the assessment to understand the correlation of each variable with the project's financial performance.
Sensitivity analysis determines the correlation between an input in a financial model to its resultant output. For instance, it checks the variation in the resultant PIRR for a corresponding variation in the project cost, provided all other inputs in the financial model remain unchanged. Scenario analysis involves projecting alternative future outcomes for the same project and their effect on the financial performance of the project. It includes working out a base case, a best case, which is the most optimistic one, and a worst case, which is the most pessimistic one, for the project.