What is Sensitivity analysis?
In short
Sensitivity analysis shows how a result, such as projected profit or net present value, changes when one assumption changes while the others stay the same. It shows which assumptions matter most.
Key takeaways
- Scenario analysis changes several assumptions at once, for example best, base and worst cases.
- Monte Carlo simulation runs many trials using probability distributions for the inputs.
- Assumptions the result is most sensitive to deserve the most support.
Where it's tested
BAR: Financial Forecasting, Budgeting & Valuation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a sensitivity analysis of a financial model, the analyst: