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Algorithm for Sensitivity analysis
Sensitivity analysis – defining the impact of changing the initial model(project) settings on the final result (profitability, income, payback period – any chosen parameter).
Sensitivity analysis refers to defining the critical limits of factor changes. For example, it can be the maximum possible sales or price reduction for works or service where net present value is positive.
The wider the range of parameters in which performance indicators remain within the valid limits, the higher the safety coefficient of the project and the better it is protected from fluctuation of different factors influencing the results of project implementing.
Algorithm for Sensitivity analysis:
- Choose the necessary parameters (automatically or manually)
- Alternately change the chosen parameters, for example, by 10%, and after that increase by the same value; after every recalculation of the final value it is reflected in the “Tornado” chart.
- If change parameters alternately from -30% to +30% in increments of 10%, the final graph will then be of a "spider" type.
Parameters setting form
Based on the calculations and the graph, it is clear what changes the project can undergo, so that it remains profitable.
If this change range is quite wide – the sensitivity of the project is not high, and the business plan is executable.
It is always necessary to consider sensitivity analysis when developing a business plan.
Calculation results in the Excel sheet
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