The Limitations of Sensitivity Analysis

A sensitivity analysis reveals critical factors that most affect the estimate results and can sometimes yield surprises. Therefore, the value of sensitivity analysis to decision-makers lies in the additional information and understanding it brings. For example, a sensitivity analysis can help engineers make technical trade-offs and can help program managers make key acquisition and program management decisions.

However, sensitivity analysis does not yield a comprehensive sense of the overall possible range of the estimate. Rather, it examines only the effect of changing one factor at a time. In some cases, a sensitivity analysis can be conducted to examine the effect of multiple factors changing in relation to a specific scenario. But the risk of several factors varying simultaneously and the effect on the overall point estimate should be understood. Whether the analysis is performed on only one cost driver or several within a single scenario, sensitivity analysis tries to isolate the effects of changing one variable at a time, while risk and uncertainty analysis examines the effects of many variables changing all at once. In the next chapter, we discuss risk and uncertainty analyses that vary more than one factor at a time to better understand a program’s overall risk.