Steps in Performing a Sensitivity Analysis

For sensitivity analysis to reveal how the cost estimate is affected by a change in a single parameter or assumption, the cost estimator must examine the effect of changing one factor at a time while holding all others constant. This allows for an understanding of which factor most affects the cost estimate. By examining each factor independently, the cost estimator can evaluate the results to discover which parameters or assumptions most influence the estimate.

A valid sensitivity analysis typically has five steps:

  1. identify assumptions and parameters, including key cost drivers, as factors for sensitivity testing;

  2. re-estimate the total cost of the program by varying one of these factors between two set amounts—for example, maximum and minimum or performance thresholds;28

  3. document the results;

  4. repeat steps 2 and 3 until all factors identified in step 1 have been tested independently; and

  5. evaluate the results to determine which factors affect the cost estimate most and document the results.

  1. The ranges should be documented during data collection and cost estimating (steps 6 and 7 of the 12-step process).↩︎