{"id":44,"date":"2014-11-19T15:34:00","date_gmt":"2014-11-19T14:34:00","guid":{"rendered":"https:\/\/caipirinha.spdns.org\/wp\/sensitivity-analysis-for-business-cases\/"},"modified":"2020-12-30T19:51:12","modified_gmt":"2020-12-30T18:51:12","slug":"sensitivity-analysis-for-business-cases","status":"publish","type":"post","link":"https:\/\/caipirinha.spdns.org\/wp\/?p=44","title":{"rendered":"Sensitivity Analysis for Business Cases"},"content":{"rendered":"

\nSensitivity Analysis<\/span><\/h2>\n
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\nCompanies develop a Business Case<\/b> before starting a project in order to know whether and how much value the project adds to the respective business unit. In the business case, assumptions or predictions are used for variables like sales price, sales numbers, material price, labour cost, development cost, etc.<\/span><\/div>\n
\nSome companies even go further and create some scenarios around the business case. They might examine, for example, how the <\/span>Net Present Value (NPV)<\/span><\/a> changes if all input variables are 10% below their value or if all input variables are 10% above the assumed values. This can give a kind of worst case and best case scenario for the business case, but as we will see in the course of this article, it also short of the insights that can be gained with a true scenario analysis.<\/span><\/div>\n
\nLet us consider the simplified business case in the Excel file <\/span>Sensitivity Analysis<\/span><\/a>. The sheet Business Plan<\/i> shows the simple business case for which the <\/span>NPV<\/span><\/a> and the <\/span>Internal Rate of Return (IRR)<\/span><\/a> have been calculated. The <\/span>NPV<\/span><\/a> has been calculated assuming a desired return rate of 12%. In the following analysis, we will investigate how the <\/span>NPV<\/span><\/a> changes if we vary one of the input variables:<\/span><\/div>\n
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