Sensitivity analysis is risk assessment method belonging to the group of quantitative methods. Its essence is as follows. A quantity is determined, the change of which can be tracked and measured. This value is of great importance for the feasibility of the project. Then the input parameters are changed one at a time, while the change in the control value is recorded. If the value has changed by more than 5% (in some cases, a maximum deviation of up to 10% is allowed), the sensitivity analysis carried out indicates that the project has a high degree of risk. After all, such a response force indicates a high degree of dependence on fluctuations in the input parameters.
We will not give detailed formulas for calculations, but let us explain with an example what can be a control measurable quantity and what can be a variable parameter on which it depends.
Most often, in practice, the analysis of sensitivity of profit of the enterprise. It is necessary to measure the dependence of the profit that the company will receive on other values, and accordingly, to assess the degree of risk. So, what can profit depend on? From sales volume, from specific variable costs and other factors. The strength of each of these factors will depend on the type of company activity, type of production. So, some enterprises will be more responsive to changes in purchasing prices for raw materials, while others will respond to changes in production volumes.
As factors, the resistance to which is taken into account in the analysis, indicators of the economic situation as a whole in the market / country, for example, inflation, can also be used. Moreover, in each case, performing a sensitivity analysis, it is desirable to simulate three scenarios. This is the best option for the development of the situation, pessimistic and, finally, realistic.
An important condition: when changing the initial data and subsequent measurements of the control value, it is important that only one input parameter is changed. Otherwise, the results obtained can hardly be considered reliable. But, since in reality we are dealing with a set of changing factors, such calculations, taking into account several values at once, are performed using a computer. The sensitivity analysis of the project is carried out in 6 stages:
- Establishment of input parameters affecting the measured indicator (for example, profit).
- Definition of a formula showing the dependence of profit on input parameters.
- Calculation of an indicator with predicted factors influencing it.
- Calculation of an indicator when changing the factors influencing it (changes in factors and, accordingly, the desired indicator are expressed as a percentage). This procedure is carried out for all studied factors, the data are recorded in tables and graphically displayed. In addition, there is a variant of analysis in which the calculation formula is substituted not for percent changes in factors, but for specific values. This allows you to identify what will happen to the indicator (profit) for specific input values.
- Identification of the most significant factors on which profit depends on a particular enterprise, as well as calculation of their critical values.
- The final analysis of the results.
Often, a sensitivity analysis of profit is performed simultaneously with a break-even analysis. Together, these calculations give the most complete picture of what will happen to the company under changing conditions, and how to maintain production profitability. They also identify the maximum permissible values for the enterprise input parameters.
Thus, an analysis of the sensitivity of an investment project or an existing enterprise allows you to establish the degree of financial risk, the appropriateness of investing, as well as identify aspects that require the most attention and develop measures to protect the stability of the company. All this helps to correctly distribute labor and financial resources, contributes to the effective management of the enterprise and provides it with a stable profit.