All property investment appraisal projects are, to varying degrees, subject to
uncertainty. The purpose of a sensitivity analysis is predict the outcome of a
decision given a certain range of variables. In undertaking a sensitivity
analysis, the ‘known’ costs are eliminated and the remaining cost variables
are subjected to analysis, to analyse how they affect the outcome. Common
factors affecting all investments include macroeconomic factors such as
market interest rates, money supply, people’s behaviour and preferences,
GDP growth and the OCF as set by the reserve bank. In the table below, data
from the last 10 years (2007 to 2017) was used to find the likely range of
these variables. If the data were to be used from the previous 50 years, a
much wider range of figures would be obtained, but many of these would be
from times when New Zealand was experiencing very volatile economic
conditions. The 2007 – 2017 period contains both boom (2016/17 peak) and
bust (2008 recession), so contains a range of figures appropriate for both of
these extremes in the current economic environment.
Many of the figures in a sensitivity analysis could be considered as related.
However, grouping them into related figures could lead to correlations
