Sensitivity analysis
What is Sensitivity Analysis?
Sensitivity analysis is a way for organizations to examine how changes to one factor within a system might affect other components of that system. It’s used to determine which variables and outputs are most likely to change as a result of smaller changes in any given one of its input variables. It is often used to predict the potential risks or consequences of making changes to complex systems.
Preparing for Sensitivity Analysis
Before taking on a sensitivity analysis, organizations should take the time to collect the relevant data and information they'll need to move forward. This includes details about the system being examined, the variables or metrics that can be considered, and the potential range of results. Organizations should also pay attention to all of the factors in play and devise a testing plan for the different scenarios that could come up with each one. Additionally, be sure to consider the broad implications of any potential change before making any decisions.
Carrying Out the Procedure
Once all of the relevant information is collected, organizations can begin the process of carrying out the sensitivity analysis. Start by making a table that outlines the different variables and their corresponding data. Then, set up a range of different scenarios that can play out with each variable. It’s important to consider how these scenarios might affect other factors in the system, as well. It is also essential to pinpoint any potential external factors that could influence the results of the analysis.
Types of Sensitivity Analysis
- One-Variable Sensitivity Analysis – this type of analysis looks at the impact of changing one variable at a time in order to test the impact of that change on the outcome. It is best suited for testing the sensitivity of results to changes in assumed parameters.
- Scenario Sensitivity Analysis – this type of analysis looks at how the outcomes of a system might change if certain assumptions are made about certain variables. This helps organizations to identify and consider different scenarios and their corresponding potential outcomes.
- Uncertainty Analysis – this type of analysis looks at the potential implications of external factors on an organization's operations and processes. It allows organizations to assess potential risks and how they might affect the outcomes of a system.
Potential Risks
Sensitivity analysis helps organizations to identify potential risks before making changes to a system and quantify those risks to better understand the implications of the changes. However, there are some potential risks associated with sensitivity analysis, such as the risk of over-simplifying complex systems or making incorrect assumptions about potential outcomes. Additionally, organizations should be aware of the potential for system errors that could occur if the data and assumptions used in the analysis are incorrect.
Why Use Sensitivity Analysis?
Sensitivity analysis is a great tool for organizations to use when making decisions about changes to be made to complex systems. It helps to identify areas where potential risks and consequences might arise and helps to capture the complexities and interactions of systems. Additionally, it can be used to quantify the potential for different outcomes, allowing for more informed and accurate decisions.
When to Use Sensitivity Analysis
Sensitivity analysis should be used anytime an organization is considering making changes to any kind of system. The analysis provides insight into the potential outcomes of a given change, allowing for far more accurate decision-making. Additionally, sensitivity analysis should be used on a regular basis in order to stay abreast of any possible changes in external factors and keep up with the current state of the system.