Sensitivity analysis is a technique which allows the analysis of changes in assumptions used in forecasts.


Cash flow forecast: Timing and amounts Budgeted profit: Sales volumes and unit selling prices Investment appraisal: Timing and amount of project cash flows over a period Etcetera

  • What if assumptions are worse by 10%?

Benefits and Drawbacks


  • Identifies the most significant assumptions
  • Helps assess risk and prepare for a less favourable scenario
  • Helps make the process of business forecasting more robust


  • Only tests one assumption at a time (many assumptions may be linked)
  • Only as good as the data on which forecasts are based
  • A somewhat complicated concept—not understood by all managers