Sensitivity analysis
In one sentenceA test that changes one variable in the plan, such as sales or price, while holding the rest constant, to see how much it affects profit or the project's feasibility.
Simply put
Every plan is built on assumptions. Sensitivity analysis asks: if this one assumption were wrong by a certain percentage, what happens to the result?
The variable that causes the biggest change is the one worth watching closely, and perhaps guarding against before you start.
Worked example
A new café is expected to sell 50,000 SAR a month with a gross margin of 40%, and its fixed expenses are 15,000 SAR a month. What if sales fall by 10%?
Expected profit50,000 × 40% − 15,000 = 5,000 SAR
Sales after the drop50,000 × 90% = 45,000 SAR
Profit after the drop45,000 × 40% − 15,000 = 3,000 SAR
A 10% drop in sales reduces profit by (5,000 − 3,000) ÷ 5,00040%
Formula: (Result after the change − base result) ÷ base result
Don't confuse it with
Scenario analysisA scenario changes several variables together to depict a complete situation; sensitivity changes one variable.