Sensitivity analysis

Advanced Probability: Uncertainty in Data

Maarten Van den Broeck

Senior Content Developer at DataCamp

What is sensitivity analysis?

How does one variable change...
... while keeping the others constant?
Goal: identify key drivers
Enhance pro-active decision-making

Focus on a variable

Sensitivity analysis vs. scenario analysis

Scenario analysis

Multiple variables at once
Explores multiple possible future outcomes
Best-case, baseline, and worst-case scenarios

Sensitivity analysis

Focus on one specific variable
Measures how changes in one variable affect the outcome
Range of possible outcomes due to variable changes

Steps of sensitivity analysis

Identify key variables

Illustration of variables

Steps of sensitivity analysis

Identify key variables
Establish reference scenario

Illustration of a person choosing a reference scenario

Steps of sensitivity analysis

Identify key variables
Establish reference scenario
Adjust one variable at a time

Illustration of persons adjusting variables

Steps of sensitivity analysis

Identify key variables
Establish reference scenario
Adjust one variable at a time
Analyze the results

Illustration of a person analyzing data

Visualizing the results of sensitivity analysis

Tornado chart example

Visualizing the results of sensitivity analysis

Spider chart example

Visualizing the results of sensitivity analysis

Heatmap example

Example: Profit margins

How do different cost and revenue factors impact profit margins?
Sensitivity analysis to test changes in:
- Product price
- Raw material cost
- Labor cost
- Advertising spend

Image of a manufacturing company

Example: Profit margins

Tornado chart example

Let's practice!

Advanced Probability: Uncertainty in Data

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