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Importance Of Sensitivity Analysis To SMEs In Nigeria

Importance of Sensitivity Analysis to SMEs in Nigeria

ImportanImportance of Sensitivity Analysis                                                     ce of Sensitivity Analysis

Sensitivity analysis is the study of how the uncertainty in the output of a mathematical model or system can be divided and allocated to different sources of uncertainty in its inputs. It can also referred to as “what-if” or simulation analysis. It is a way to redirect the outcome of a decision given a certain range of variables. By creating a given set of variables, an analyst can determine how changes in one variable affect the outcome.

Importance of Sensitivity Analysis

  • It compels the decision maker to identify the variables which affect the cashflow forecasts.
  • It helps investors in understanding the investment project in totality.
  • It indicates the critical variables for which additional information may be obtained.
  • It equally helps decision maker to consider actions, which may help in strengthening the “weak spots” in the business.
  • It helps to expose inappropriate forecasts and thus guides the decision maker to concentrate on relevant variables.
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