Using Sensitivity Analysis
Michael Samonas MSc and PhD · 2015
This chapter examines the use of sensitivity analysis in apportioning the uncertainty of a model's output to the different sources of uncertainty concerning its inputs. Sensitivity analysis is one of the most important tools in financial analysis. The chapter focuses on a quick and painless way to run multiple scenarios without having to change inputs manually each time by making use of Excel data tables. Step-by-step examples walk the reader through the preparation of sensitivity analysis tables. In addition this chapter explains the use of Excel's Goal Seek function and presents through examples the preparation of Tornado charts, as a means of assessing the importance of various model input variables. It also deals with the creation of 1-dimensional and 2-dimensional tables in Excel as a means of sensitivity analysis. Finally, the author highlights the need to keep track of where the input values of model assumptions are located.