Sensitivity Analysis - A tools and Techniques

Sensitivity analysis helps to determine which risks have the most potential impact on the project or program or portfolio. It takes into account two-variable at a time, they are Influencing variable and Dependent variable. For example, consider, Influencing variables here are all identified risk in the risk register and cost baseline is a Dependent variable of a project. We will take one risk at a time and will analyze its impact on the cost baseline and will repeat for all the risks. Now, this analysis of risk impact can be done through multiple ways such as brainstorming sessions, expert judgment, interview, 3 point estimates, etc., The result of sensitivity analysis can be represented with a tornado graph. Imagine, on the horizontal axis of the graph, we are portraying cost baseline value in terms of Billions dollar and on vertical axis all the risk. The risk which has the highest impact on cost baseline value will come first and so on. Finally, the result of all risk analyses on the cost baseline in this graph will look like a tornado diagram.

This representation can also be considered as the Pareto diagram (80:20 rule) where the Pareto diagram is also called an ordered bar chart or ordered histogram. Here (Pareto Diagram) we will plot the Influencing variable (Risk) on X-axis and Dependent variable (Cost) on Y-axis.

In both representations, the length of the bar will depict the degree of impact on the dependent variable. The higher the impact the bigger the size of the bar. Remember once again, the bigger the bar size that will be plotted first.

This tornado graph or Pareto diagram later then will be reviewed for the risk response plan. The risk at the top or left most of the graph will be prioritized first for actions.

We can use sensitivity analysis as a tool to control cost, control schedule, control scope, control quality, etc.,

The drawback of sensitivity analysis is, it only takes two-variable at a time so if we have to analyze risk impact on schedule or scope or quality, etc., then we have to plot multiple tornado diagrams for each constraint of the project.