Discuss What-if analysis.

The technique used to determine how independent variable values will impact a particular dependent variable under a given set of assumptions is defined as sensitive analysis. It's usage will depend on one or more input variables within the specific boundaries, such as the effect that changes in interest rates will have on a bond's price. It is also known as the what - if analysis. Sensitivity analysis can be used for any activity or system. All from planning a family vacation with the variables in mind to the decisions at corporate levels can be done through sensitivity analysis. It helps in analyzing how sensitive the output is, by the changes in one input while keeping the other inputs constant. Sensitivity analysis works on the simple principle: Change the model and observe the behaviour. The parameters that one needs to note while doing the above are: 1) Experimental Design: It includes combination of parameters that are to be varied. This includes a check on which and how many parameters need to vary at a given point in time, assigning values (maximum and minimum levels) before the experiment, study the correlations: positive or negative and accordingly assign values for the combination. 2) What to Vary: The different parameters that can be chosen to vary in the model could be: a) the number of activities b) the objective in relation to the risk assumed and the profits expected c) technical parameters d) number of constraints and its limits 3) What to Observe : a) the value of the objective as per the strategy b) value of the decision variables c) value of the objective function between two strategies adopted