Risk and Uncertainty (3) Flashcards

1
Q

What is a sensitivity analysis?

A

Describe any technique whereby decision options are tested for their vulnerability to changes in any “variable”

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2
Q

Examples of a variable in sensitivity analysis?

A

Expected sales volume

Sales price per unit

Material costs

Labour costs

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3
Q

Approach to sensitivity analysis (Calculating)

A

Calculating maximum percentage change in variable before decision would change

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4
Q

Approach to sensitivity analysis (Assessing)

A

Assessing if decision would change if a variable changed by x% of estimate

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5
Q

What does sensitivity analysis concentrate on?

A

Management attention on variables that are most important for the decision under review

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6
Q

Sensitivty analysis strength (understand)

A

Easy to understand

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7
Q

Sensitivty analysis strength (highlights variables)

A

Highlights key variables which are crucial to success of the project, once identified these can be closely monitored

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8
Q

Sensitivty analysis limitations (multiple variables)

A

Assumes all changes are independent. In reality multiple variables are likely to chance simultaneously

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9
Q

Sensitivty analysis limitations (amount of change)

A

Only identifies the amount of change required in one variable, does not assess probability of that change occurring

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10
Q

Sensitivty analysis limitations (decision rule)

A

Does not offer a clear decision rule

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11
Q

What is a simulation model?

A

Numbers are linked to probability distributions so number chosen would occur with the same probability that real-life event would occur

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12
Q

Where can simulation be used?

A

For estimating queues in shiops, as this depends on two uncertainties

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