CIMA P1 Syllabus D. Dealing With Risk And Uncertainty - Sensitivity - Notes ^{5 / 6}

This calculates the maximum percentage change in a variable before a decision would change

The lower % variables that are therefore the most important for the decision under review.

Sensitivity analysis can be used to assess the range of values that would still give the investor a positive return.

Advantages of Sensitivity Analysis

1. Easy to understand

2. Highlights key variables

Disadvantages of Sensitivity Analysis

1. Looks at variable only one at a time

2. It does not assess the probability of any change occurring

3. Does not offer a clear decision rule; management judgement is still required