How can sensitivity analysis deal with uncertainties surrounding projects in the flood management sector?

The technique of sensitivity analysis can deal with uncertainties when alternative assumptions about key variables are made and their effects on the project’s net effect (Benefit-cost ratio (BC ratio), B/C or Economic internal rate of return (EIRR)) are worked out under such uncertainties.

Suppose the project has a BC ratio of 3:1 on the assumption that it will be completed in three years. What happens to the BC ratio if the completion is delayed to five years or ten years? This requires calculation of the BC ratio on the assumption of a completion time of five years and also ten years. It may turn out that these BC ratios are 1.5 and 0.8 respectively.

This shows that the project is sensitive to the period of construction but remains viable even in the case of delay of up to two years. But it becomes unviable if its completion is delayed by seven years.

 

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