6.6 - Sensitivity testing of the funding gap

Introduction

The financial analysis will involve making assumptions and estimates, which may involve uncertainty or be subjective in nature. Assessments of the sensitivity of the funding gap to critical assumptions shall be undertaken on the preferred proposal option.

Required sensitivity tests

There are three sensitivity tests that should be performed on the funding gap analysis:

• varying the service provider's required rate of return
• varying the timing of capital expenditure
• varying the length of the analysis period.

Each of these is described below.

Service provider required rate of return

An upper and lower bound of the service provider's required rate of return shall be indicated along with its effect on the funding gap of the proposal.

Timing of capital expenditure

Where significant capital expenditure is a feature of the proposal, sensitivity testing shall include the effect on the funding gap of varying the timing of such expenditure.

Period of analysis

The effect of varying the length of the period of analysis on the funding gap shall be presented.