What does 'sensitivity analysis' assess in financial appraisal?

Sensitivity analysis is a critical tool in financial appraisal that focuses on how variations in key assumptions can affect the results of a project. By systematically altering specific input variables—such as costs, revenues, and economic conditions—sensitivity analysis allows decision-makers to observe the potential range of outcomes and understand how sensitive the project's success is to these assumptions.

For example, if a financial model's projected benefits are heavily dependent on a certain sales volume, sensitivity analysis could reveal how different sales volumes would impact profitability. This provides invaluable insights into the robustness of the project, helping stakeholders gauge risks and make informed decisions based on potential fluctuations in key assumptions.

The other options address important aspects of project management and evaluation but do not specifically capture the essence of sensitivity analysis. Stakeholder feedback, market risks, and project scope variations pertain to different facets of project appraisal and do not directly relate to the impact of changes in assumptions which sensitivity analysis primarily focuses on.