Question

How and when do you use the following tools:

1. Sensitivity Analysis
2. Breakeven Analysis
3. Conjoint Analysis

Answer 1

Answer:-

Senstivity Analysis:--

Under a given set of assumptions, how independent variable will impact a set of dependent variable. This is also known as What- If Analaysis.

Thus it is clear that sensitivity analysis is used in a situation of making decisions where there are many independent variables and a dependent variable.

It is used in investment analysis.

Here are the steps on how senstivity analysis is used:-

1. Firstly a base case output is defined

2. All other inputs are kept constant and how output value is changed with new input value is determined.

3. Then percentage change in output as well as percentage change in input is determined

4. Then senstivity analysis is done by dividing the percentage hange in output by the percentage change in input.

Breakeven Analysis

Breakeven may be defined as a point where business has earned enough profit to cover its fixed expenses and other costs.

Breakeven point is ued when business wants to know that how much sale should be made before profit is relaised. In other words, sale required to cover fixed and other variable expenses.

It is calculated with the help of following formula:-

Fixed Cost / Contribution per unit

Where,

Contribution per unit = Sales Less Variable expenses

Conjoint Analysis

It is used in market research when company wants to judge what impact a particular set of attribute has on the respondent choice or decision making. In order to measure product's feature, change in demand due to change in price etc, conjoint analysis is used.

it is used by adopting the following steps:-

1. Determine the type of study to be conducted namely ranking, rating or choice strategy

2. Next step is identifying the relevant attributes.

3. Specify the different attribute levels

4. Designing the questionnarie