FREE online courses on Refresher on Financial Planning - Chapter 4 - Sensitivity Analysis

 

We can measure how sensitive our forecast is to changes in certain variables. We can develop a range of possibilities under different assumptions and prepare alternative plans. If Plan A fails, we can quickly move to Plan B. Sensitivity analysis also tells us which assumptions have the biggest impact on the forecast. Managers can concentrate most of their resources on the biggest impact areas for improving the forecast. The main benefit of sensitivity analysis is to measure the possibility of errors in the forecast.