Sensitivity & Scenario Analysis

Question 1

What is sensitivity analysis in development appraisal?

Answer 1

• A process that shows how the appraisal outcome changes when key variables (e.g. GDV, build costs, finance rate) are adjusted.
• Demonstrates the robustness of the scheme and highlights key risks.
• Required best practice under RICS (Valuation of Development Property, 2019).

Question 2

What types of sensitivity analysis can be undertaken?

Answer 2

• Simple sensitivity: adjusting one variable at a time (e.g. ±10% GDV).
• Scenario analysis: testing changes to design, phasing, or timing (e.g. delayed sales).
• Monte Carlo simulation: probabilistic modelling using specialist software.

Question 3

Why is sensitivity analysis important?

Answer 3

• Helps identify which variables pose the greatest risk to viability.
• Provides transparency for clients and stakeholders.
• Supports negotiations with lenders, landowners, and planning authorities.