15 - SENSITIVITY ANALYSIS

OBJECTIVE

Use ZUCOST analysis tools to identify the items and resources that have the greatest economic impact on the estimate.

The purpose of this phase is to concentrate the estimator's review effort on the values that matter most and to evaluate how changes in costs, productivity, quantities, or general factors affect the final result.


MAIN TOOLS

Use the following tools together:

• Pareto Analysis 80/20.
• Resource Inventory.

These tools provide two complementary views of the estimate:

• Pareto identifies the items with the greatest impact on the total estimate.
• Resource Inventory identifies the resources with the greatest accumulated economic impact.


PARETO ANALYSIS

Run the Pareto Analysis after performing a complete calculation.

Use:

F5 - CALCULATE ESTIMATE AND BASE

Then run:

PARETO ANALYSIS 80/20

Review:

• Weight %.
• Cum. %.
• Items with the highest economic contribution.
• Groups of items that represent most of the total estimate.

This allows the estimator to identify where a small number of items may represent a large portion of the project cost.


RESOURCE INVENTORY

Generate the Resource Inventory after the estimate has been recalculated.

Review the consolidated resources used by the project, including:

• Quantity.
• Description.
• Unit.
• Resource Type.
• Cost.
• Qty(Hr), when applicable.
• Total.
• Weight %.

This report helps identify the resources that have the greatest financial influence on the estimate.


WHAT TO REVIEW FIRST

Prioritize the elements with the highest economic impact.

Examples:

• Major materials.
• High-value equipment.
• Large labor components.
• Important subcontract packages.
• Frequently repeated resources.
• High-cost items.
• Items with significant indirect cost exposure.


CREATE ALTERNATIVE SCENARIOS

Sensitivity analysis may involve modifying one variable at a time and observing the effect on the estimate.

Possible variables include:

• Resource Cost.
• Labor productivity.
• Equipment productivity.
• Item duration.
• Resource quantities.
• Subcontract values.
• Contingency.
• Administration.
• Taxes.
• Insurance.
• Profit.


WORK WITH CONTROLLED CHANGES

Avoid changing many assumptions simultaneously.

A better method is:

1. Identify a high-impact item or resource.

2. Modify one assumption.

3. Run F5 - CALCULATE ESTIMATE AND BASE.

4. Review the effect on Unit Cost and Grand Total.

5. Compare the result with the previous scenario.

6. Keep, reject, or adjust the assumption.

7. Repeat as necessary.


EXAMPLE

Suppose a material represents a significant percentage of the total estimate.

The estimator may evaluate:

• Current quoted cost.
• A possible higher market cost.
• An alternative supplier cost.

After each change, recalculate the estimate and observe the effect on the Grand Total.

The same method can be applied to productivity.

For example, reducing Units per Day will generally increase labor or equipment duration and may increase the final item cost.


WHY THIS IS IMPORTANT

Not all estimating assumptions have the same importance.

A 10% variation in a minor resource may have almost no effect on the project total.

A 5% variation in a major material, subcontract, or high-impact item may significantly change the final estimate.

Sensitivity analysis helps the estimator focus attention where uncertainty matters most.


USE PARETO TO PRIORITIZE

The objective is not to review every value with the same level of intensity.

Use Pareto Analysis to identify the items that deserve the most detailed review.

Then use Resource Inventory to identify the individual resources responsible for major portions of the project cost.

Together, these tools help create a focused review strategy.


REPEAT AS NECESSARY

Sensitivity analysis is an iterative process.

The estimator may perform as many adjustments and recalculations as necessary until the estimate reaches an acceptable level of confidence.

Possible cycle:

Review → Adjust → F5 → Analyze → Compare → Adjust again


IMPORTANT

Sensitivity Analysis is not intended to manipulate the estimate toward a predetermined price.

Its purpose is to understand how the estimate responds to realistic changes in the assumptions.

Every adjustment should have a technical, commercial, or market-based justification.


RECOMMENDATION

Perform Sensitivity Analysis after the resource structure, quantities, productivity, costs, and general factors have been substantially completed.

Concentrate first on the items and resources with the greatest economic impact.

Once the major assumptions have been reviewed and the final result is considered technically and commercially reasonable, the estimate is ready for the Final Reports phase.