Journal Press India^®

Author Details ( * ) denotes Corresponding author

Sensitivity analysis holds a lot of importance for evaluating any project, if risk/sensitivity analyses are not thorough during the project preparation, project performance may fall short of expected standards. Post evaluation reports indicate, in several cases, overstatement of expected benefits, overly optimistic estimations of implantation schedules and inadequate treatment of uncertainties that are widely prevalent in the macroeconomic, social and institutional environment. The General objective is to understand the significance of the sensitivity analysis in the value evaluation of the project. The main objective is to learn the concepts and techniques employed in the analysis and selection of investment proposals with special emphasis on economical feasibility. To address these issues we need to be more systematic. Provisions should be made in project preparation and processing, for analysis of preventive and contingent measures. So the need of risk and sensitivity analysis is felt. This project discusses the sensitivity analysis of pipeline line project used for computing the internal rate of return and pay back period of the project. Since financial decisions are commonly supported via a point value of some criterion of economic relevance (net present value, economic value added, internal rate of return, pay back period, etc.), we focus on local sensitivity analysis. In particular, we present the differential importance measure and discuss its relation to elasticity and other local sensitivity analysis techniques in the context of discounted cash flow valuation models. We will present general results of the net present value and internal rate of return sensitivity on changes in the cash flows. Specific results are obtained for a valuation model of project under severe survival risk used in the industry sector of oil and gas generation.

Keywords

Sensitivity analysis; Macroeconomic; Economic feasibility; Net present value; Internal rate of return; Discounted cashflows; Value evaluation.

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