The purpose of the sensitivity analysis is to ascertain the impact of the key assumptions on the VFM analysis, in order to assess the robustness of the VFM analysis and the allocation of risk. This is required because these key assumptions may differ from actual experience if the project is implemented.
Some assumptions have significant consequences in the final estimates of costs and income. Examples include length of the project, significant cost components, impact of technology refresh, fluctuations in exchange rates, changes in lifecycle of a particular business sector. The Work Team shall select a minimum of three key assumptions which have the most significant impact on the project with respect to delays and cost increases, to be the focus of the sensitivity analysis.
The results arising from the sensitivity analysis shall be used as a cross check to the results arising from the valuation of the risks, and an assessment shall be made regarding the robustness of the VFM analysis.
The final conclusions regarding VFM shall consider the VFM analysis, the sensitivity analysis and the qualitative assessment undertaken earlier.
This will be especially important for projects where a revenue share arrangement is envisaged.