Sensitivity Analysis

[sen-si-TIV-i-tee uh-NAL-uh-sis]

What is the definition of Sensitivity Analysis?

A study that measures the impact of changes in one or more variables on the risk or profitability of an investment or project.

Using Sensitivity Analysis in an Example

In a sensitivity analysis, a financial analyst might explore how changes in interest rates could affect the projected returns of an investment portfolio. By adjusting the interest rate variable, the analyst can determine how sensitive the portfolio's performance is to fluctuations in interest rates.

Using Sensitivity Analysis in a sentence

During the project review, the team conducted a sensitivity analysis to understand how potential increases in material costs could affect the overall budget.

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