John knows that the holiday season is approaching and that the mall will be crowded. John is in charge of sales for HOLIDAY CO, a business that sells Christmas decorations at a shopping mall.
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These functions are both taught step-by-step in our free Excel Crash Course. The analysis is performed in Excel, under the Data section of the ribbon and the “What-if Analysis” button, which contains both “Goal Seek” and “Data Table”. This question can be answered with sensitivity analysis. The “What-If” question would be: “ What would happen to the price of a bond If interest rates went up by 1%?”. Image from CFI’s Scenario & Sensitivity Analysis in Excel Course What-If AnalysisĪ Financial Sensitivity Analysis, also known as a What-If analysis or a What-If simulation exercise, is most commonly used by financial analysts to predict the outcome of a specific action when performed under certain conditions.įinancial Sensitivity Analysis is done within defined boundaries that are determined by the set of independent (input) variables.įor example, sensitivity analysis can be used to study the effect of a change in interest rates on bond prices if the interest rates increased by 1%. As a result, the exact relationship between the inputs and outputs are not well understood. For example, climate models in geography are usually very complex. An opaque function or process is one which, for some reason, can’t be studied and analyzed. It is especially useful in the study and analysis of a “Black Box Process” where the output is an opaque function of several inputs.
In general, sensitivity analysis is used in a wide range of fields, ranging from biology and geography to economics and engineering. Sensitivity Analysis is a tool used in financial modeling to analyze how the different values of a set of independent variables affect a specific dependent variable under certain specific conditions. Updated JanuWhat is Sensitivity Analysis?
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