Why perform sensitivity analysis? Of what use is sensitivity analysis where good probability estimates are difficult...

Why perform sensitivity analysis? Of what use is sensitivity analysis where good probability estimates are difficult to obtain?

Expert Solution

For a given set of assumptions, the sensitivity analysis is used to examine the impact of the various values of an independent variable upon that of a particular dependent variable. Hence for sensitivity analysis, it is essential that there should be a presence of one or more than one variable to determine the causal-effect relationship between the two for different values of independent variables to that of a dependent variable. Hence, for this reason, sensitivity analysis is performed.

When good probability estimates are difficult to obtain, it is essential that the values of the independent variables are ascertained first because the analysis is based upon simulation technique. Hence for a certain range of variables, if the probability estimates are difficult to obtain, sensitivity analysis can at least help to simulate the what-if scenario and estimate the anticipated outcomes of the same. In this case, the variables shall be separated and then, the range of probable outcomes could be recorded for better estimation.

keosha answered 6 months ago

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