What indicates a project may need reconsideration during the forecasting process?

A project may need reconsideration during the forecasting process when the Net Present Value (NPV) is particularly sensitive to a crucial variable. This sensitivity indicates that small changes in key assumptions can lead to significant variations in the expected financial outcomes. If a critical input, such as sales volume, cost of goods sold, or discount rates, can drastically alter the NPV, it raises a red flag about the reliability of the projections.

Such sensitivity may suggest the project is inherently risky or that external factors could greatly affect its success. Consequently, it becomes essential to evaluate the variables that contribute to this sensitivity further and assess whether the project is worth pursuing under those conditions. This deep dive can also inform risk management strategies that may need to be employed to mitigate potential negative impacts.

While negative NPVs across all scenarios, consistent results, and the absence of influencing variables might provide some insights into project viability, they do not inherently indicate the need for reconsideration in the same nuanced way as a high sensitivity to critical variables does.