In sensitivity analysis, what is varied to observe effects on outputs?

In sensitivity analysis, what is varied to observe effects on outputs?

• A. Key inputs are varied to observe effects on outputs.
• B. Only historical data is used.
• C. It guarantees exact outcomes.
• D. It is used to predict tax rates.

Answer: (A)

Sensitivity analysis examines how outputs respond when you change the inputs. By varying the key inputs within realistic ranges or distributions, you can see how much the results swing and identify which variables have the most influence. This helps you assess uncertainty and the robustness of the model. The other statements don’t fit: sensitivity analysis isn’t just about historical data, it’s about testing how hypothetical changes in inputs affect outcomes; it doesn’t guarantee exact results, it shows possible variation; and while it can be used in many contexts, its purpose isn’t to specifically predict tax rates.

Sensitivity analysis examines how outputs respond when you change the inputs. By varying the key inputs within realistic ranges or distributions, you can see how much the results swing and identify which variables have the most influence. This helps you assess uncertainty and the robustness of the model. The other statements don’t fit: sensitivity analysis isn’t just about historical data, it’s about testing how hypothetical changes in inputs affect outcomes; it doesn’t guarantee exact results, it shows possible variation; and while it can be used in many contexts, its purpose isn’t to specifically predict tax rates.