Sensitivity & Scenario Analysis Flashcards

(3 cards)

1
Q

What is sensitivity analysis in development appraisal?

A
  • 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).
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2
Q

What types of sensitivity analysis can be undertaken?

A
  • 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.
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3
Q

Why is sensitivity analysis important?

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