How do sensitivity analysis and scenario analysis differ?

How do sensitivity analysis and scenario analysis differ?

• A. Sensitivity analyzes a single input change; scenario analyzes multiple inputs under a specific situation.
• B. Scenario analyzes a single input change; sensitivity analyzes multiple inputs under a scenario.
• C. Both analyze a single input change.
• D. Both analyze multiple inputs under different conditions.

Answer: (A)

The key idea here is how inputs are varied in the model. Sensitivity analysis looks at how changes in one input affect the outcome while keeping all other inputs fixed. It isolates the impact of that single factor to see which inputs the model is most sensitive to. Scenario analysis, by contrast, changes several inputs at once to reflect a specific situation or plausible set of conditions. It captures how different factors interact under that scenario and shows the outcome given that combination. So the statement that sensitivity analysis changes a single input and scenario analysis changes multiple inputs under a specific situation matches the typical definitions, making it the best fit. For example, you might vary price alone to see its effect on profit (sensitivity), or you might model a recession with a particular mix of lower demand, higher costs, and tighter credit (scenario).

The key idea here is how inputs are varied in the model. Sensitivity analysis looks at how changes in one input affect the outcome while keeping all other inputs fixed. It isolates the impact of that single factor to see which inputs the model is most sensitive to.

Scenario analysis, by contrast, changes several inputs at once to reflect a specific situation or plausible set of conditions. It captures how different factors interact under that scenario and shows the outcome given that combination.

So the statement that sensitivity analysis changes a single input and scenario analysis changes multiple inputs under a specific situation matches the typical definitions, making it the best fit. For example, you might vary price alone to see its effect on profit (sensitivity), or you might model a recession with a particular mix of lower demand, higher costs, and tighter credit (scenario).