⚠ What is it..❓

ℹ Asking “What-if❓” — under different — scenarios — circumstances — conditions.

ℹ Assess possible outcome because of changes.

ℹ Example❓ — recalculate net present value (NPV)…

   🤔 What if demand fell by 10% ❓

   🤔 What if variable costs are 5% higher ❓

ℹ Sensitivity Analysis — financial model — simulation modelling and analysis.

ℹ Predict — outcome of a decision — given certain range of variables.

ℹ Determine — impact — target variables — based on changes in other variables — input variables.

ℹ Discover — maximum possible change in one of the parameters — before opportunity turns non-viable.

⚠ What advantages..❓

【01】Sensitivity Analysis – Any advantage❓ How useful❓

⭐ Yes, as below indicate…

ℹ Facilitate subjective judgement — decide likelihood — consider various possible outcomes.

ℹ Identify crucial areas — success of the project — monitor carefully.

ℹ Indicate critical of the forecasts — uncertain.

ℹ NO complicated theory.

【02】What is risk ?

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ℹ Facilitate subjective judgement — decide likelihood — consider various possible outcomes.

ℹ Identify crucial areas — success of the project — monitor carefully.

ℹ Indicate critical of the forecasts — uncertain.

ℹ NO complicated theory.

⚠ What disadvantages..❓

ℹ Focus single variable changes at a time — impractical.

ℹ Assume independent changes to variables — without changes on other variables — unrealistic.

ℹ In reality — if material prices ▲ — selling price also ▲ — changes in 2 variables.

ℹ NO consider probability — NO likelihood of the change.

ℹ Identify only — how far a variable needs to change.

ℹ Identify which decisions can be made — NOT to the correct decision — NOT optimising enough.