Modified Method for Sensitivity Analysis of Investment Projects Efficiency Criteria
Modified Method for Sensitivity Analysis of Investment Projects Efficiency Criteria

Summary/Abstract: The article deals with the theoretical and practical aspects of applying the sensitivity analysis method for efficiency criteria of investment projects. The advantages and disadvantages of the method have been analyzed. A modified version of the method has been proposed, in which the model of the project cash flow is refined and, unlike the standard method, the elasticity coefficient, calculated on the basis of regression model development, is used as the index of sensitivity. In addition, for the situation of representative statistical data on dependent parameters of the project being absent, the proposed method includes a procedure for developing a regression model based on the distribution table of a two-dimensional random variable obtained on the basis of plausible expert judgments about the interrelationship of project parameters. An integrated approach to risk assessment of investment projects has been considered, consisting in joint application of the sensitivity analysis method and the method of analysis of project development scenarios. The scenario analysis method has been supplemented with a quantitative indicator of risk assessment that is more informative in comparison with the variation coefficient and characterizes the probability for an investment project to prove unprofitable.

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