From the E36 Bentley manual (i know yours is E34, but it might be similar
):
1. Connect the DIGITAL voltmeter to connect 1 and connector 2 on O2 sensor, start the engine, the output of voltage will fluctuating a
short period of time. (0.2-0.8VDC)
2. If incorrect: Seperate sensor harness connect from sensor. Check for battery voltage between terminals 3 & 4 (green wire & brown wire) while engine is running. If voltage is not present, check your oxygen sensor heater relay.
3. Check heater element resistance between terminal 3 & 4 of SENSOR. If the sensor's element has no continuity, replace sensor. If the preheater circuit is ok but the sensor doesn't product a fluctuating voltage, replace sensor.
In the manual:
To check sensor respone to lean and rich condition, create an air leak, or pull vacuum hose off the fuel pressure regulator to increase fuel pressure.
You shall see the output voltage fluctuate.
Tightening torque : Oxygen sensor to exhaust pipe - 41 ft-lb