Question

Advantages of risk analysis over sensitive analysis and scenario analysis

Answer 1

Advantages of Sensitivity Analysis

Following are the advantages of this analysis:

In-depth Analysis

When sensitivity analysis is done, each independent & dependent variable is studied in-depth. Their movements are studied and how independent variable affects dependent variable is also studied. In the pursuit of understanding the relationship between the variables, the cause and effect reaction between the two establishes. Such in-depth analysis will bring more accurate future forecast.

Strengthen “weak spots”

As sensitivity analysis studies each variable independently, it can identify critical variables that may act as a weakness. For example – In this analysis, we find out that the bond prices are extremely volatile to changes in inflation, we can take measures to reduce the impact, say by hedging. Thus we can say – weak spot is identified & strengthened.

Answer 2

The main advantage of risk analysis over sensitive analysis and scenario analysis is that sensitive analysis is a significant technique  based on data and information for forecasting. The data helps the business organisation to create important decisions for their maximizing their profits

Explanation:

• The significant differentiation  between the sensitivity analysis and scenario analysis is that sensitive analysis takes into account the risk and uncertainties of business. Thereafter it studies and analysis the result by changing a variables. The scenario analysis changes all the variables of the input to make an assessment
• The sensitivity analysis uses the help of forecasting one it takes into account all the variables and the its impact that is backed by data and information. The business organisation use this method to make decisions regarding their investments
• In the 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 risk analysis

Which is not a non – economic risk?

(a) Monetary Policy

(b) Analysis of risk

(c) Rate of risk

(d) Decision of risk-taking

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