Sensitivity Analysis

Sensitivity Analysis provides a simple ‘what-if’ indication of what would happen to a key result, if changes are made in the assumptions.   The difficulty with sensitivity analysis however is that the 'what-if’s are usually arbitrary and do not take into account the entire gamut of random possibilities that could occur.

Nevertheless sensitivity analysis does provide a rough indication of the key sensitivities to a particularly result e.g. sensitivity of a 'Net Present Value' or 'Return on Investment' etc.

Using a Monte Carlo Approach (MCA) to quantitative risk analysis provides a real ranking of the importance of each assumption made to an outcome. MCA shows which assumptions are important in a project. In addition MCA quantifies their importance and therefore provides a strategy a greater chance of a successful outcome.