Sensitivity analysis

Question 1

Sensitivity analysis

Answer 1

Sensitivity analysisis a financial model that determines how target variables are affected based on changes in other variables known as input variables

Question 2

Why set up a sensitivity analysis?

Answer 2

The study of changes on a management science model is called sensitivity analysis—that is, seeing how sensitive the model is to changes.

It studies all the variables in-depth, so the predictions is reliable. It allows decision-makers to identify where they can make improvements in the future. It allows for the ability to make sound decisions about companies, the economy, or their investments.

Question 3

Disadvantages

Answer 3

The outcomes are all based on assumptions because the variables are all based on historical data. This means it isn’t exactly accurate, so there may be room for error when applying the analysis to future predictions.