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Engineering Economy, 5/e

Leland Blank, Texas A&M University
Anthony Tarquin, University of Texas - El Paso

Formalized Sensitivity Analysis and Expected Value Decisions

Learning Objectives

Purpose: Perform a formal sensitivity analysis of one or more parameters; and perform expected value and decision tree evaluations of alternatives.

This chapter will help you:

1. Sensitivity to variation

Calculate a measure of worth to explain sensitivity to variation in one or more parameters.

2. Three estimates

Choose the better alternative using three estimates for selected parameters.

3. Expected value

Calculate the expected value of a variable.

4. Expected value of cash flows

Evaluate an alternative using the expected value of cash flows.

5. Decision tree

Construct a decision tree and use it to evaluate alternatives stage by stage.

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