What is sensitivity analysis best described as?

Sensitivity analysis is best described as the examination of how changes in independent variables can affect a dependent variable. This analytical technique is crucial in various fields, including finance, engineering, and economics, where it helps in understanding the relationship between variables and determining how sensitive the outcomes are to changes in input values.

For instance, in a financial model, sensitivity analysis allows a manager to see how variations in factors such as interest rates, sales growth, or costs can impact profitability. This understanding aids in decision-making, risk assessment, and forecasting. By evaluating different scenarios and their potential impacts, organizations can better prepare for uncertainties and strategically plan for various outcomes.

The relevance of this concept is significant in facility management as well, where various factors influence operational costs and service quality. Recognizing how adjustments in these factors can affect overall performance assists managers in optimizing their resources and making informed strategic decisions.