As a tool for risk analysis, what are the advantages and disadvantages of sensitivity analysis?...

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As a tool for risk analysis, what are the advantages and disadvantages of sensitivity analysis? Break-even analysis?

Robert · Accepted Answer

The advantages of sensitivity analysis as a risk analysis tool are as follows. 
 It is a useful technique to identify the critical input or independent variables which tend to 
have a huge impact on the investment project feasibility. As a result, the risk mitigation 
efforts could be directed towards these variables rather than the complete project. 
 It also enhances the understanding of the overall project by increasing the understanding of 
how the cash flows are being generated for the project.

As a tool for risk analysis, what are the advantages and disadvantages of sensitivity analysis? Break-even analysis?

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