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Sensitivity Analysis

Sensitivity Analysis. Sensitivity Analysis. What are key factors influencing returns? Determine set of ranges that are the realistic ranges for key variables These include: Price of key inputs Gasoline, skilled labor Market price of outputs Commodity cotton

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Sensitivity Analysis

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  1. Sensitivity Analysis

  2. Sensitivity Analysis • What are key factors influencing returns? • Determine set of ranges that are the realistic ranges for key variables • These include: • Price of key inputs • Gasoline, skilled labor • Market price of outputs • Commodity cotton • Any other quantifiable range that effects returns

  3. Best/Worst case • Best Case • Take all “up side” values • Worst Case • Take all “down side” values • Typical • Mean of expected values Establishes expected returns and reasonable range of expected outcomes

  4. How can you establish the ranges for key variables?

  5. Application Trucking to Port

  6. Potential Problem Analysis What could go wrong?

  7. Benefits • Understand key threats to plan • Can develop appropriate contingincies • Modification to deal with • Insurance • Proactive Risk Management

  8. Develop List • Events that would substantially effect results • Rate the events as high, medium, low • Rate the impact of the events as high, medium, low • Develop plan to deal with

  9. Exam II Nov. 13, 2006

  10. Next Class Scenario Analysis

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