What does a sensitivity analysis accomplish in project evaluation?

A sensitivity analysis is a powerful tool used in project evaluation to understand how variations in input parameters or assumptions can affect project outcomes. By systematically changing one or more variables, such as costs, revenues, or schedules, sensitivity analysis allows project managers and stakeholders to identify which factors most significantly influence project success or failure. This helps in assessing risks and making informed decisions.

By examining the relationships between the uncertainties in project inputs and their corresponding effects on outputs, this analysis provides insights into how responsive the project's profitability or viability is to changes in assumptions. Such understanding is crucial for strategic planning and risk management, ensuring that decision-makers are aware of potential variations and can prepare accordingly.

In contrast, summarizing project results refers to collating data that reflects the overall performance without focusing on variable impacts. Setting project benchmarks involves establishing reference points or standards for measuring performance but does not delve into analysis. Assessing market trends relates more to external factors influencing projects rather than evaluating them based on specific parameters. Thus, the primary function of sensitivity analysis is to test the impact of changing one or more parameters, making it an essential aspect of project evaluation.