EC 15 - Assumptions and Sensitivity Analysis

Question 1

Two reasons for evaluating reasonableness of assumptions

Answer 1

• gain greater confidence in results of analysis

- assess the risk that actual results will differ from estimates

Question 2

Should all assumptions be evaluated?

Answer 2

No, only those which are likely to have a significant impact

Question 3

When can information be relied upon?

Answer 3

When they come from a third party and it is based on stable historical data

Question 4

Key assumptions that can fluctuate often pertain to three things?

Answer 4

market uncertainties (such as price customers willing to pay)
product mix variation
input cost fluctuation

Question 5

Next step is to analyze the information - what questions can you ask?

Answer 5

what info may be used to verify or corroborate the assumptions?
is it possible to identify a range of possible future values?

Question 6

If the purpose of your evaluation is to gain greater confidence in the results of an analysis, and you have access to corroborating information, then you can do what?

Answer 6

Test reasonableness of assumptions

Question 7

If the purpose of your evaluation is to assess the risk that actual results of an analysis will vary significantly from estimates, and you have access to ranges for key variables, then

Answer 7

you can vary the assumptions to test the sensitivity of results

Question 8

What is sensitivity analysis used for?

Answer 8

To understand how outcomes are impacted as assumptions in a projection change

Question 9

Common technique in sensitivity analysis

Answer 9

Analyze best and worst case scenarios

Question 10

When conducting sensitivity analysis where do you start?

Answer 10

With expected results