Sensitivity Analysis Explained: Which Number Matters Most?

Sensitivity analysis explained: in sensitivity analysis, finance teams change one forecast assumption at a time to see which number matters most before a decision. If you’ve searched “what is sensitivity analysis” or “sensitivity analysis tornado diagram,” you’ll learn to test four assumptions one at a time from a base-case forecast and rank them on a sensitivity analysis tornado chart, the sensitivity analysis graph with the widest profit range on top. I walk through a sensitivity analysis example: a backpack shop weighing its lease renewal, where a 5% price cut halves a $50,000 profit forecast and pushes it below the $30,000 target. I also show why realistic ranges can change which assumption ranks first, what happens when price and sales fall together, and how sensitivity analysis, decision making and risk management connect in a real lease decision. Whether you’re new to sensitivity analysis, risk management or financial modeling, this video gives you a practical way to stress-test a forecast.

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Chapters
0:00 – Why Small Changes Matter
0:58 – Build the Base-Case Forecast
2:07 – Test Price and Sales Volume
3:06 – Compare Assumptions with a Tornado Chart
3:39 – Choose Realistic Ranges
4:32 – When Price and Sales Fall Together
5:15 – Use Sensitivity Analysis to Make Decisions
5:36 – Wharton Financial Planning and Analysis Certificate

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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Ryan O’Connell Finance LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.