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What is a sensitivity analysis?

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What is a sensitivity analysis? How would you use it in planning for future expansions? What role does this kind of analysis play in your work environment and/or your home environment? If you were trying to add a new service to your facility, what ratios would you use to determine if it would be profitable and how long until it would break even?

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Discusses definition, use and role of sensitivity analysis in work environment. Includes 270 words and 4 references.

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A sensitivity analysis determines the impact on a dependent variable due to different values of an independent variable under given assumptions. Sensitivity analysis is very useful in predicting varying outcomes due to different situations or conditions that may prevail in the future. For example, sensitivity analysis can help in identifying different price of a stock in the future due to different PE multiples and earnings reported by the company. Thus, sensitivity analysis helps us to determine the potential outcome or consequence ...

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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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