Chapter 10 explains that becau

Chapter 10 explains that because of the methods of financing,the absence of tax and profit requirements, and political andsocial factors, the criteria used in evaluating privately financedprojects frequently cannot be applied to public works. Thebenefit-cost ratio (B-C) has remained a popular method forevaluating the financial performance of public projects. Chapter 11addresses sensitivity analysis among alternatives to be made or theacceptability of a project to be determined on the variationspresented. Discuss and explain how variability best beconsidered in an engineering economic analysis (i.e., you candiscuss sensitivity analysis).


variability best be considered in an engineeringeconomic analysis ..


In engineering economic analysis , all the factors used are forthe purpose of estimating future occurences and the estimates ofparameters such as costs and other cash flows are only anapproximation of reality because the realized future value willalways be different from the estimated value as sensitivityanalysis tells us how the economic and measures will be altered ifcertain factors are varied as it is an attempt to find out theuncertainity in parameter estimate.

Sensitivity analysis identifies the parameters tht have the mostimpact on an economic decision as it also tells the change ininterest if a certain variable is changed for a specified time.

if a small change in input variable leads to a bigger change inoutput variable then the parameter is termed sensitive to theoutcome as the sensitivity analysis identifies the parameter withthe highest sensitivity and the effect on the economic outcome likethe present value and since sensitivity

analysis can’t vary two parameters at a time, therefore it ishard to tell about the risk of the project and whether change in 1parameter mitigates the risk in other parameters.


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