Question

Advantage of risk analysis over sensitive with the analysis and scenario analysis

Answer 1

Sensitivity analysis is a management tool that helps in determining how different values of an independent variable can affect a particular dependent variable. It can be useful in wide range of subjects apart from finance, such as engineering, geography, biology, etc.

Answer 2

Advantage of risk analysis over sensitive analysis and scenario analysis is that sensitive analysis is an important method since it is based on data and information for forecasting. The data helps the business organisation to create strategic decisions for their business.

Explanation:

• The important difference between the sensitivity analysis and scenario analysis is that sensitive analysis takes into account the risk and uncertainties and evaluates the result by changing one variable. The scenario analysis changes all the variables of the input to make an assessment
• After taking into account all the variables and the its impact the sensitivity analysis uses the help of forecasting that is backed by data and information. The business organisation use this method to make decisions regarding their investments
• With a scenario analysis all the variables are used to asses the future investments in business. It works through different market conditions to understand the risk factor of business.

To know more about sensitivity analysis

Differentiate between trend analysis and sensitivity analysis.

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