What Are the Similarities and Differences Between Sensitivity Analysis, What-If Analysis, and Goal Seeking Analysis? Provide Business Examples of When You Would Use Each.
Sensitivity analysis, what-if analysis, and goal seeking analysis are used for same purpose to analyze complex relationships among millions of data items to discover business patterns, trends. All of them are part of Decision support systems (DSS) analysis techniques. It helps managers to explore possible alternatives.
What-If Analysis: In what-if analysis, an end user makes changes to variables, or relationships among variables, and observes the resulting changes in the values of other variables. Managers repeat this analysis with different variables until they understand all the effects of various situations. It differs from Sensitivty Analysis where manager changes only one variable at 1 time. It is changing an input value in an ad hoc way and seeing the result. Managers will not understand assumptions of sensitivity analysis and can't thoroughly explore solutions. Example: What happens if business cut marketing cost by 15%? What happens if flood comes to New York city? Sensitivty Analysis: - Is a special case of what-if analysis. Typically, the value of only one variable is changed repeatedly, and the resulting changes on other variables are observed. So sensitivity analysis is really a case of what-if analysis involving repeated changes to only one variable at a time. Typically, sensitivity analysis is used when decision-makers are uncertain about the assumptions made in estimating the value of certain key variables. Example: What happens if business cut employees strenght by 2% every month repeatedely? Whap happens if business increase their stock level by 3% every year? Goal-Seeking Analysis: - Reverses the direction of the analysis done in what-if and sensitivity analysis. Instead of observing how changes in a variable affect other variables, goal-seeking analysis sets a target value for a variable and then repeatedly changes other variables until the target value is achieved. Example:
What-If Analysis: In what-if analysis, an end user makes changes to variables, or relationships among variables, and observes the resulting changes in the values of other variables. Managers repeat this analysis with different variables until they understand all the effects of various situations. It differs from Sensitivty Analysis where manager changes only one variable at 1 time. It is changing an input value in an ad hoc way and seeing the result. Managers will not understand assumptions of sensitivity analysis and can't thoroughly explore solutions. Example: What happens if business cut marketing cost by 15%? What happens if flood comes to New York city? Sensitivty Analysis: - Is a special case of what-if analysis. Typically, the value of only one variable is changed repeatedly, and the resulting changes on other variables are observed. So sensitivity analysis is really a case of what-if analysis involving repeated changes to only one variable at a time. Typically, sensitivity analysis is used when decision-makers are uncertain about the assumptions made in estimating the value of certain key variables. Example: What happens if business cut employees strenght by 2% every month repeatedely? Whap happens if business increase their stock level by 3% every year? Goal-Seeking Analysis: - Reverses the direction of the analysis done in what-if and sensitivity analysis. Instead of observing how changes in a variable affect other variables, goal-seeking analysis sets a target value for a variable and then repeatedly changes other variables until the target value is achieved. Example: