Question

Chapter 10 explains that because of the methods of financing, the absence of tax and profit requirements, and political and social factors, the criteria used in evaluating privately financed projects frequently cannot be applied to public works. The benefit-cost ratio (B-C) has remained a popular method for evaluating the financial performance of public projects. Chapter 11 addresses sensitivity analysis among alternatives to be made or the acceptability of a project to be determined on the variations presented. Discuss and explain how variability best be considered in an engineering economic analysis (i.e., you can discuss sensitivity analysis).

Answer 1

variability best be considered in an engineering economic analysis ..

ANSWER:

In engineering economic analysis , all the factors used are for the purpose of estimating future occurences and the estimates of parameters such as costs and other cash flows are only an approximation of reality because the realized future value will always be different from the estimated value as sensitivity analysis tells us how the economic and measures will be altered if certain factors are varied as it is an attempt to find out the uncertainity in parameter estimate.

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

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

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

.