Sensitivity Analysis

Sensitivity Analysis is a method used to evaluate how the results of a decision or action may change in response to variations in one or more factors. It is a business case tool used to identify the key drivers of a decision or outcome, and to understand how these drivers may affect the overall performance of the business or project.

To conduct a sensitivity analysis, you need to identify the key factors that may impact the decision or outcome, and then vary these factors to see how the results change. This can involve creating models or projections based on different assumptions about market conditions, economic trends, and other factors that could affect the outcome of the decision.

How Does Sensitivity Analysis Differ from Scenario Analysis?

Sensitivity analysis and scenario analysis work together to test the strength of a business case.

One-way sensitivity analysis changes one assumption at a time, holding the others constant, to identify which assumptions have the greatest influence on the result. For example, it might test how higher installation costs affect net present value (NPV), while keeping productivity gains and implementation timing unchanged.

Scenario analysis changes a coherent combination of assumptions together to assess performance under different plausible conditions. For example, a pessimistic scenario might combine higher installation costs, smaller productivity gains and delayed implementation.

Sensitivity analysis helps answer “Which assumptions matter most?” Scenario analysis helps answer “How could the option perform under different conditions?”

Read our guide to pessimistic, expected and optimistic scenarios for definitions and practical examples.

Stress Testing

Stress testing assesses how an option performs under severe but plausible adverse conditions. For example, it might combine a substantial cost increase, lower benefits and a significant implementation delay to test the effect on cash flows and net present value (NPV).

It helps decision-makers understand how much deterioration an option can withstand, identify vulnerabilities and determine what contingency plans or risk mitigation measures may be needed.


By incorporating stress testing into the business case, you can identify and address potential weaknesses, make informed decisions, and increase the likelihood of achieving success in challenging environments.

Use our Financial Analysis Templates to test key financial assumptions and assess how changes affect the results of your business case.