Learn how to make sensitivity analysis
Sensitivity analysis is a statistical tool that can be used in finance to determine how large deviations from the expected value are when a certain input is changed. As the name implies, it determines how sensitive an output is to changes in input. Depending on the number of variables involved and the sensitivity analysis tools that are being used, the sensitivity analysis can be time consuming and difficult.
Many finance students have problems with how to make sensitivity tests produce accurate data, for one reason or another. If you run into trouble, don’t worry. Our finance homework service can provide any sensitivity analysis help you may need. There are a number of ways how to do a sensitivity analysis.
Methods include:
- Emulators are modeling and simulation techniques using data-modeling/machine learning approaches that involve building a relatively simple mathematical function (emulator) that approximates the input/output behavior of the model itself. As you are basically modeling a model the emulator is also known as a metamodel.
- Brainstorming techniques involving identifying activities and potential factors that could affect the outcome of those activities.
- Scenario management tools such as those built into Microsoft Excel. Most people are unaware of the sensitivity analysis function in spreadsheets. With the “what if” function automated Excel is a sensitivity analysis solver, requiring only inputs.
How to do a sensitivity analysis
There are some basic steps for doing a sensitivity analysis using a spreadsheet like Excel. The steps will be general without technical details as they may vary from spreadsheet to spreadsheet. You will need to be familiar with Excel or the one you use: Here are the basic steps how to make sensitivity analysis tests:
- Enter the various inputs and the formula that will be used.
- Find the output that is the result of applying the formula was to your input and record the output
- Select the input that you want to test for sensitivity. Leaving all other inputs unchanged enter a new value for the input being tested. Find the value of output that resulted from changing the input.
- Find the percentage change in the output and the percentage change in the input.
- Find sensitivity by dividing the percentage change in output by the percentage change in input.
You can repeat the process with each of the inputs and determine which inputs result in a bigger change. Basically every time you change an input you are asking “what if I change this input to another value. If you are unsure how to conduct sensitivity analyses tests or have trouble with some aspect of the analysis, our finance homework service can help.
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