Sensitivity Analysis

Date: 27 August 2013
Category: RealTime CEO
Tags: 3W Accountability, Sensitivity Analysis

Sensitivity Analysis helps you decide which action will have the biggest impact on your business

In our blog 3W Accountability we discussed how we hold people accountable for actions being completed. It’s all very well to decide what action you’re going to take but how do you ensure that you’re allocating your scarce resources in the most effective way? In this blog, we’re going to look at sensitivity analysis as a way of helping you decide which action will have the biggest impact. Sensitivity analysis enables you to determine which one percent change to any of those levers will have the most profound impact on the business’s strengths and weaknesses.  

– Sensitivity analysis calculates the impact of changes to each RealTime lever
– Highlights areas of high impact – inevitably price
– Also highlights areas of low impact – inevitably variable indirect costs.

In the diagram above we demonstrate how a one percent change to each of eight Fiscal Focus levers will impact your profit. Fiscal Focus levers are things that executives can change in order to influence the performance of the business. As you can see, the lever that has the biggest impact is price. But it’s interesting to note that variable indirect costs has a lower impact than many other levers, something to think about if cost-cutting is one of your main strategies.

Sensitivity analysis shows you how to allocate your resources

Sensitivity analysis shows you how to allocate your scarce resources to where they’re going to have the biggest impact. An analysis of your business will clearly show what is most effective at creating value and improving your performance. How much easier would it be to make business decisions if you knew how effective the changes would be before you made the decision?

Contact us on how to get specific information on a sensitivity analysis for your business.

Join us again next time as we look at the Mathematics of Pricing. (This one may surprise you! 😯 )