Sensitivity analysis

Risk and uncertainty are two important concepts in business and financial analysis. When conducting an analysis, or making a decision, there is a certain level of risk and uncertainty that needs to be taken into consideration. Each business will have different risks and uncertainties, however the methods you can use to analyse risks are reasonably uniform and straightforward.

Sensitivity analysis is the first method that we will explore, and it deals with assessing uncertainties as opposed to risks. A sensitivity analysis is performed to determine the value (or change in value) of your output (e.g. profit) when one of your input variables (eg, price, cost) has changed. You can either do this using percentage or by using low/high estimates of your input variable.

Watch the following video, on how to conduct a sensitivity analysis in Excel and then use our template (link provided in the next activity) to conduct one yourself.

Watch: (Optional)Sensitivity analysis – Microsoft Excel (4:22) [1]

References

1. Sensitivity analysis – Microsoft Excel [Video]. Eric Andrews; 2016 Aug 2. Available from: https://www.youtube.com/watch?v=N924D6tGOG8