In your own words define what a sensitivity analysis is and discuss why it is a critical step in conducting CEA. Provide examples.© BrainMass Inc. brainmass.com December 24, 2021, 11:40 pm ad1c9bdddf
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In your own words define what a sensitivity analysis is and discuss why it is a critical step in conducting CEA. Provide examples.
Sensitivity analysis is a tool used to determine how performance is affected by change based on an assumption of the performance. It is also used to compare a number of scenarios and their likely outcome. Sensitivity analysis is an important step in conducting Cost-effectiveness analysis (CEA). Since CEA is based on some assumptions there could be some uncertainty in the evaluation. Sensitivity analysis is a critical step when conducting CEA because it specifies ways to measure and evaluate the uncertainty of the CEA. Sensitivity analysis is a way to bridge the gap between recommendations and custom. Sensitivity analysis will increase confidence in decision-making and make valuable suggestions in areas where further research can be made. A sales manager might want to know what the forecasted net income would be if he sold 15 more HVAC units the originally estimated or sold 15 less than predicted. Another example, Lincoln Inc. needs to produce 1200 Lincoln automobiles at 2 plants. Due to unforeseeable issues at the plant, one plant can only produce half the amount required. Sensitivity analysis can be used to help answer questions such as the current cost for production, production quantities and projected profits.© BrainMass Inc. brainmass.com December 24, 2021, 11:40 pm ad1c9bdddf>