Sensitivity Analysis Examples in Financial Modeling

Sensitivity analysis is a tool to help analyze the impact of any changes in key assumptions on the key outputs of the model, such as the NPV (net present value) and IRR (internal rate of return). Sensitivity analysis is also known as the “what-if” analysis approach where one would have to go through a series of what-if questions to run different simulations and determine the impact of each assumption.

By simply running a variable through different scenarios or circumstances, you’ll be able to determine how sensitive the output is and also find out how to keep the inputs constant. In other words, sensitivity analysis is the task of calculating the uncertainty of a financial model while considering different sources of inputs.

Once you have a working financial model, choosing the key value drivers as well as a series of inputs or outputs to use as the variables to conduct sensitivity analysis is an important challenge. It is so easy to do these in Excel that the tendency is to drown management with numbers. Instead of taking that easy way out, you need to devote some time to decide which sensitivity analysis will be most informative to look at. To learn more about the significance of conducting a sensitivity analysis, feel free to read the article: Why Sensitivity Analysis Matters.

Building a sensitivity analysis model isn’t as simple as it sounds. It takes skill, experience, and the equivalent know-how to be able to fully utilize the usefulness of the model. If you are looking for sensitivity analysis example models, you can browse the selection here: Model Templates with Sensitivity Analysis. By using these sensitivity analysis example templates as a reference, you will be able to see how they function and you will also learn how to build one for yourself. By using the template as your base model, you will be able to build a working financial model with a sensitivity analysis section included.

These financial model templates which included Sensitivity Analysis are ready-made by expert financial modelers at eFinancialModels, a platform offering a wide range of industry-specific financial model templates made by experts that have substantial financial modeling experience and industry know-how, so you don’t have to hire a professional to build a fully customized model for you.