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Finance
Sensitivity Analysis
Testing how much a project's outcome changes when key assumptions (sales, costs, interest rates) are varied.
Sensitivity analysis (sometimes called 'what-if' analysis) is part of almost every serious investment decision. It shows which variables have the biggest impact and where the real risks are hiding.
It's asking 'what if everything goes wrong — or everything goes right?' before you bet the farm.
Real world: A company building a new factory runs sensitivity analysis. If sales are 20% lower than expected, the project still breaks even. If interest rates rise by 2%, it becomes unprofitable. Managers use this to decide whether to proceed.
💡 Sensitivity analysis turns optimistic plans into realistic ones by showing the danger zones.