Dissimilarities between Sensitivity and Scenario Analysis
Both scenario and sensitivity analysis can be important components in determining whether or not to make an investment. They are a great way to insulate your model from risk. Dissimilarities between sensitivity and scenario analysis are as follows:-
How uncertainty in the output of a model can be assigned to different sources of uncertainty in the model input, is called as a sensitivity analysis.
The process, in which we analyze possible future events by considering alternative possible outcomes, is called as scenario analysis. It can assist with decision analysis. They are laid out in advance so that the decision makers can see the expected impact of each course of action.
Sensitivity analysis is useful for computer modelers and Uncertainty analysis is helpful in decision making.
Where the scenarios analysis is about the possible event of future while risk analysis is about the risks, their probability’ and evaluation.
Sensitivity analysis helps in finding the problems in a model. At the end of a sensitivity analysis, you want to be able to estimate that ‘an X% increase in price will result in a Y% decrease in the amount of my product sold.’
Scenario analysis is a method does not rely on historical data instead it shows several scenarios to show possible future outcomes. It involves setting up different values for model parameters to get desired results. It is possible to create a number of business scenarios, based on different business drivers, to provide insights into how each decision will affect the business.
All these types of analysis are really helpful and are used in different ways. We cannot deny the importance of any one of them.