Sensitive Analysis: Measuring ImpactScott Williams
What is Sensitivity Analysis? It is the process of determining the impact a fixed percentage change in the thing being measured has on the overall performance. An example of a Sensitive Analysis: a change in product price by 1% had an 11% change in profit. This is on average in 1000 European businesses. For real life tests on your own data, go to the ChangeBoard Tool for Sensitivity Analysis. Blue Belt
You can learn more about this, and see it at work, in the introduction to the 12Faces Optimise100 Campaign in the example in the Case Studies.
Sensitivity Analysis is the process of determining the impact a particular variable has on the overall performance of something.
f you look at a number of the elements that makeup your business, for example, Price; Inventory Costs; Labour Costs; Marketing etc. and apply this test to each of them, you will find the one that has the greatest impact. This is the one that you should focus on first.
It is usually discovered by building a spreadsheet model of whatever the business or project is.
An Example of Sensitive Analysis:
The variables in the spreadsheet are:
- Cost per unit of part 1
- Cost per unit of part 2 and
- Cost per unit of part 3
- And their respective impact on gross profit
To work out the part whose change in price will have the greatest impact on Gross Profit, change each of them by 10%. This is while holding the others at the same value.
The impact of each on the Gross Profit will be different.
The business model you have constructed is most “sensitive” to the variable that changed the Gross Profit the most when you did the experiment.
The sensitive analysis indicates that is the one to focus on first because it has the greatest impact.
Indirectly, the 80/20 Rule (see the Amazing 80/20 Rule article) arrives at much the the same conclusion that most impact is done by just a few variables.
Starting with the most sensitive input variable means you move as quickly as possible to growth in output.
Alternatively, if you don’t want to upset things too much, you might work with the least sensitive variable.
Undertaking a host of sensitive analysis with comparatively small changes can have a surprising compound interest outcome. If you can improve some element of your business by about 10% each week, that element would be 100% better in just 7 weeks. This is the effect of Compound Interest on growth (link https://www.12faces.business/compound-interest-accelerator/).