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For which kinds of decisions will a company use scenario analysis? When would they use sensitivity...

For which kinds of decisions will a company use scenario analysis? When would they use sensitivity analysis instead?

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Answer #1

Scenario Analysis is used by business to select any one or more out of all available options.It is used for analyzing the probable financial outcomes of certains decisions to be taken today.Example selection of one of facilities to operate the stores is an exapme of scenario analysis.

However sensitivity analysis is used for predicting the outcome of decision if the situation turned out to be different.It helps in risk assessment of all the inputs based on which decisions are taken and their impact on our decisions.

In sensitivity analysis unfavorable changes are considered to evaluate their impact on the profitability of the project in comparison to the scenario analysis.

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