What is sensitivity analysis primarily used for in business cases?

Sensitivity analysis is a critical tool in business case development primarily used to assess how changes in key input variables can impact outcomes. This technique focuses on evaluating the vulnerability of options to future uncertainties. By varying assumptions regarding inputs—such as costs, revenues, or market conditions—sensitivity analysis helps to identify which factors have the greatest influence on the project's success or failure.

For instance, in a business case scenario, if a company is evaluating a new project, sensitivity analysis would allow them to see how varying the cost of raw materials or changes in interest rates might affect the project's overall return or feasibility. Understanding these uncertainties is vital for decision-makers to evaluate risks and prioritize options accordingly.

Evaluating financial projections, determining potential return on investment, and analyzing market trends are important elements in business case assessments; however, they do not inherently focus on the uncertainties associated with those factors. Sensitivity analysis specifically addresses the question of how sensitive the outcomes of a business case are to variations in assumptions, which is crucial for making informed decisions in the face of uncertainty.