Importance of sensitivity analysis
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Introduction :_----
Sensitivity Analysis in Action. The first step of a sensitivity analysis is to identify: (a) the dependent variable you want to predict and (b) as many of the independent variables that might impact the dependent variable. ... Those factors are the independent variables.
Sensitivity Analysis :—-----
The environment of a business is very unstable, and it can change quickly due to the influence of external factors. These external factors can be anything from the change in a sales demand to the new application of a government policy that is not in the favor of business. This can result in the decrease in sales and maybe increase in costs. This will invariably reduce the profits of the company, and company will suffer losses. To prevent this from happening, the companies need to monitor the external environment continuously.
By keeping track of the changes in the external factors, necessary actions can be taken to prevent the losses. In order to keep track of the external changes, the entity needs to implement a method that will help it determine the sensitivity of its sales, costs and changes in its income patterns. This method is known as sensitivity analysis. The sensitivity analysis determines the changes in the quantifiable variables of the project to determine it viability.
Sensitivity Analysis in Action. The first step of a sensitivity analysis is to identify: (a) the dependent variable you want to predict and (b) as many of the independent variables that might impact the dependent variable. ... Those factors are the independent variables.
Sensitivity Analysis :—-----
The environment of a business is very unstable, and it can change quickly due to the influence of external factors. These external factors can be anything from the change in a sales demand to the new application of a government policy that is not in the favor of business. This can result in the decrease in sales and maybe increase in costs. This will invariably reduce the profits of the company, and company will suffer losses. To prevent this from happening, the companies need to monitor the external environment continuously.
By keeping track of the changes in the external factors, necessary actions can be taken to prevent the losses. In order to keep track of the external changes, the entity needs to implement a method that will help it determine the sensitivity of its sales, costs and changes in its income patterns. This method is known as sensitivity analysis. The sensitivity analysis determines the changes in the quantifiable variables of the project to determine it viability.
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