Formalized Sensitivity Analysis and Expected Value Decisions
Formalized Sensitivity Analysis and Expected Value Decisions
This chapter includes several related topics about alternative evaluation. All
these techniques build upon the methods and models used in previous
chapters, especially those of the first eight chapters and the basics of
breakeven analysis in Chapter 13. This chapter should be considered preparation
for the topics of simulation and decision making under risk, presented
in the next chapter.
The first two sections expand our capability to perform a sensitivity analysis
of one or more parameters and of an entire alternative. Then the determination
and use of the expected value of a cash flow series are treated.
Finally, the technique of decision trees is covered. This approach helps an
analyst make a series of economic decisions for alternatives that have different,
but closely connected, stages.
The case study involves a thorough sensitivity analysis of a multiplealternative,
multiple-attribute (factor) project set in the public sector.
