How to do Sensitivity Analysis in Excel? (Template included)

Sensitivity Analysis is one of the most needed skill to develop for any financial modeling project. After all, every finance manager needs to understand how much sensitive is our model to every variable (which are usually assumptions) that we have used. Let me explain it more: every financial model contains some variable which drives our output in some ways. For example, you have sales (or revenue) in your project, but what’s driving the overall sales of the company? Usually it’s the “units sold” and “selling price per unit” right?

Well, let me mention it beforehand that sensitivity analysis can be applied in a variety of scenarios, for example. ……., I would mainly refer to Profit or Loss (P/L) to help you understand the concept.

What is sensitivity analysis?

Sensitivity analysis is really about understanding how much impact any variable is causing to our final output. For example, how much sensitive is net profit to the selling price means the impact the selling price is having on net profit. It’s a way of dealing with uncertainty.

When (and usually it is) the situation around our project is uncertain, the prediction that we have made wont be the same, leading to a variance. But the question is which factor will affect the final figure to how much extent? That’s where the need of sensitivity analysis arises.

How to do it in excel?

How to do 2 variable analysis/

Applications of sensitivity analysis

Breakeven sensitivity analysis